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3AC COLLAPSE - RARE INTERVIEW w/Kyle Davies #CryptoTownHall
Recorded: July 3, 2023 Duration: 2:31:43Space Recording
Short Summary
The transcript discusses various developments in the crypto space, including the launch of a new reality show, trends towards institutional adoption with Bitcoin ETFs, significant growth in Bitcoin and Ethereum performance, the launch of a new exchange called Open Exchange, and innovations in exchange architecture. Additionally, there are discussions on the decline of the retail lending market and fundraising efforts for blockchain protocols.
Full Transcription
Testing, testing. Can you hear me?
Yeah, can you hear me?
Yay, yes, yes, man.
I forgot what your voice sounded like.
Hey, you missed me, bro.
I did.
I'm surprised you pulled it together last week.
I expected a shit show.
I'm like, this is it.
Oh, I honestly say it was like almost embarrassing for you guys how well I did.
I know, I don't.
Oh, surprise.
Even promoted the sponsor.
I'm like, holy shit.
The guy that hates everybody promoted something.
I stepped up to the plate.
Well, it sounds like you guys had a hell of a week, though.
Man, really?
Have you noticed?
Man, that show was insane.
If anyone doesn't know, me and Rand, we're filming a show called...
So if you go on Twitter right now, and you search Killer Wales TV.
So Killer Wales TV.
And then check out the videos.
There's not much videos there.
They're pretty strict.
But it's a reality show.
The production's insane.
I swear, it just felt like Hollywood.
You were in the Batcave, right?
I mean, where they stealthed like Batman.
Yeah, when they filmed.
Exactly.
Yeah, that's awesome.
Exactly.
Exactly.
So we were where they filmed the Batcave
where Batman was in one of the movies.
And let me just accept the last invite,
and then I'll tell you the story.
Where is it?
Who's left?
If someone is requesting,
you check the request.
Yeah, so we had,
so the set,
if you check it out,
is exactly where Batman was filmed.
It was in L.A.
And like, for me,
it was, you know,
you add a lot of, you know,
My story is pretty dramatic for the last week.
So I had the Russia space where I didn't sleep for two days.
And not long before that, I had two days before that had the submarine space.
And before the Russia space, I had Imran Khan, the Prime Minister of Pakistan, ex-primmonister.
So we did Imran Khan while the mutiny started, did the mutiny, two days, 24 hours no sleep,
but ended up not sleeping for two days.
And then immediately packed my bags and headed to L.A., which is a...
16 hour flight for me.
Landed, next day, early morning, started filming.
So we filmed the Shark Tank, production's insane.
As we're gonna love that show.
It's probably the best show I've seen in crypto,
even though it's not out yet.
So just a bunch of us judges and then projects pitch
and then we just give them feedback.
I will end up looking like an asshole.
I did not expect it, but that's the feedback I got from everybody.
I tried not to be an asshole.
So I did what Scott usually does.
So we filmed that for two, three days and Ran was there as well.
I wish they, I hope they released the unedited footage because Ran is, the guy's hilarious and we had a few fights on stage.
And then, yeah, New York and then back here.
So that's what we were doing while you're chilling behind your desk running these spaces.
Yeah, I was, it was, uh, I'm not jealous. It sounds like you were having less fun than me, obviously, so, no, but the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, and, and.
you know, that will do exceptionally well,
and maybe we can do some similar things
moving forward in the future.
So pretty exciting for you guys
that you guys were both there.
Now I'm going to hang out with Rand in London
this weekend for the British Grand Prix.
Why is he?
He's actually going to London.
You guys, I swear you guys have too much free time.
Like I struggled.
I almost canceled the show,
the Shark Tank show.
I almost canceled it because of the whole Russia
mutiny thing.
Like in my mind, I was like survival mode.
And obviously while I was doing the show,
there was a lot of drama happening,
Twitter drama.
But look, enough about me.
I think, Scott, I'll give you the honors to introduce our special guests and our great panel.
Sure, I was going to wait until Rand comes up, obviously, and we'll get that for a moment.
Who's Ryan, man?
Yeah, good question.
Oh, that third guy, the guy from South Africa.
Maybe give us a quick market update.
I know Ryan is jumping in any minute.
We usually start with a market update anyway.
So how is the market, maybe quick overview of last week because I've been MIA, and then how is it looking today?
Well, we had a monster week, obviously, two weeks ago on the back of the BlackRock ETF filing and then obviously seeing everybody get in line behind them, Fidelity.
Yeah.
etc. And so, you know, basically Bitcoin went from 25,000 where it had dropped to because of the
Coinbase and finance lawsuits with the SEC and then got the BlackRock News and made a move
all the way from 25 up to 31. I think it's just sort of absorbing that now or probably in
wait and see what news comes. I will say it's surprisingly tenuous.
everybody obviously bullish on the
the ETF and the idea of it happening,
but one sort of misleading headline last week
from the Wall Street Journal that said that, you know,
the SEC,
they can't.
They kind of implied that it was being rejected, but clearly they were just asking for more information,
sent price down $1,000 in about 30 seconds, right, before spaces.
So I think it's very important to be cautious knowing that sort of any news in that arena
clearly is going to move the market in one direction or another.
But I would say generally, I think it's been a positive tone to have
the biggest asset managers in the space talking about crypto,
talking about, I should say, talking about Bitcoin specifically
and prepared to make that move.
Whether it's going to get approved or not, I have no idea.
We see so much fake news surrounding it,
the big fake news of the weekend, which sometimes I just shake my head when I go on Twitter.
was like a made-up news site, made up a story that Gary Gensler was resigning.
I was going to talk about that, yeah.
Yeah, with the source being another SEC insider.
You read it and it's like written by like a Russian operative on chat GPT or something
from a news site that has no other news and it just goes viral, of course, on crypto Twitter because
the sheep are leading.
It was just, I blew my mind how quickly the most
fake news of all time could rock the market.
Worse than that was the YouTube,
the YouTube bros who just made video after video after video
about how Gary Gensler is resigning.
I'm not going to mention names.
They know who they are.
But I mean...
And they don't remove it after you correct them.
So then, by the way, Scott, you're breathing into the mic,
man.
It's like you're going to swallow it.
That's not me.
It is you, trust me.
I know your breath, man.
See, that's better.
But what pisses me off is that they get corrected.
They know it's false, but they see it going well, and they choose engagement over reputation.
That pisses me off.
All right, you've got the engagement.
You put a false story.
Someone corrected it.
You got a rumor.
Remove it.
Say, hey, sorry, this is false.
Or at least add an update under it like, hey, this is false.
But, you know, the right thing is to remove it.
But they just don't.
They just keep it and then get the engagement.
I was...
I was about to go live.
I was thinking of going live
and then I just thought,
there's nowhere.
I've got to double check this
and triple check this.
And I couldn't find one,
one,
credible site that actually covered it.
And not only that.
Yeah.
If you read the content of the article, like, Gary Gensler is appointed by the president.
He's not resigning to his peers in the SEC.
Like, I just thought, like, logically, do you think that, like,
Gary Gensler decides one day that he wants to leave,
goes to the human resources department in the SEC and says,
hey, human resources, you know, just want to complain about the number of leave days.
I have also, I wonder, here's my letter of resignation.
I don't think it works like that in the SEC.
Yeah.
Has there been rumors of Gary resigning in the past?
There's been rumors that he'll get pushed out, but not of him willingly resigned.
Either way, this is just complete.
Wishful thinking.
This is just literally complete stupidity, somebody playing a joke and spent wasting, you know, thousands of hours of people's brain power trying to absorb it.
Cool.
Look, I'm not going to complain.
I'm not going to complain.
It did push the Bitcoin price.
Before, right, Ryan, just quickly, just right.
Before we kick off the show, one question.
Your quick thoughts on the show in L.A.?
Unbelievable.
Mario and I were invited to become killer whales on the killer whales show, which is the equivalent of...
Killer whale, killer dolphin.
Get your wording right.
So it was me, it was me the killer whale and Mario was goldfish.
Goldfish.
Yeah.
Yeah, they're going to kill a goldfish.
I must say, Mario.
So first of all, it was amazing working with you.
It was a lot of fun.
I think you're a much nicer person in real life than you are in Twitter spaces.
In Twitter spaces, you're sometimes a bit of a dick.
But in real life, you're actually a cool guy.
I do think that the production quality was unbelievable.
Like, I didn't expect such high production.
But I have to tell you a very, very funny story, which I didn't, like, you wouldn't have known this, but I have to tell you the story.
So...
I traveled 36 hours to be in LA for 72 hours to travel 36 hours home.
So it was like a 72 hour of traveling for 72 hours in LA.
And I was very jet lag because the time zones are the exact opposite.
So like complete opposite.
So I was on two hours of sleep a night.
And, you know, we were, we were on set for 10 or 11 hours.
And on set, I found these drinks called Celsius.
And it looks like pear juice and, you know, apple juice.
So the one, on the second day, I drank like seven or eight of these Celsius in the morning.
And I don't know why, but my heart started to go like crazy.
And it was like, like, I was heart palpitation.
I thought I was going to have a heart attack.
I genuinely thought I was going to collapse.
And I'm trying to work out what the cause of the collapse is while trying to stay sane on camera and smile and look relaxed and whatever else on camera.
And I Google the Celsius energy drink.
Turns out it has 200 milligrams of caffeine in each can.
Now, for those of you who don't know, that's two and a half times a red bull.
So I drank the equivalent of 20 red bulls while I was on set.
I was sitting there thinking I was going to have a heart attack.
I couldn't let anybody know this because, you know, there's cameras and there's lights,
but I genuinely at one point thought, this is the end of my life.
I'm about to have a heart attack.
Me and you were so fucked up on the show.
I was going, I had all the drama happening while I couldn't touch my phone.
Like, the world's going on fire.
And then you were just a high on caffeine.
And then we had to kind of keep a straight face.
But when you were, I swear, I don't know if it was the second day.
You were like, yeah, it was.
We only did one day together.
Yeah.
And Scott, Rand was, ran, no, we did two shows in one day.
Ran, Scott, Ran was the whale and Ran was the project pitching both at the same time for at least half the shows.
It's hilarious.
It was so hilarious.
No one would interrupt it because I think they both too comfortable.
So I was one just jabbing at him, but it was epic.
I hope they put out the behind the scenes footage.
But Ryan, enough about us, man.
Let's let's let you kick off the show and our special guest.
Yeah, I mean, okay, let's just quickly just quickly kick off the show today.
I think one thing that we saw today, we had Bitcoin performing as the best performing assets in the first half of the year, so Q1 and Q2 combined.
Total cumulative return of 86%, or 83.81%,
And that's relative to the NASDAQA, the NASDAQ at 31%, the Nikai at 27%.
So, you know, when you see this, when you see quarterly returns like this, you get to the institutions getting a lot of foamer.
And I think you take that.
you know as an institutional as a fund manager how do you not justify not having bitcoin in your
portfolio when there's speculation around the et f when bitcoin was the best performing asset in the
first two quarters by by country mile that's i think the first bit of good news which we should
probably dig into uh second bit of news which i think some of the more degen people will will
like you that uh
The ETH-BTC chart, which is the chart that measures Ethereum relative to Bitcoin,
is up since the beginning of July is up about 6 or 7%.
So that means that Ethereum is starting to outperform Bitcoin.
It's only a couple of days and it's just a little bit of a heartbeat.
But there is some life in the altcoins, which has been...
It just shows that more, what it means is that more confidence is coming back into the market.
And the fear and greed index is showing that as well.
So I think we're seeing as people get more greedy, we see altcoins, you know, the gap between altcoins and Bitcoin start to shrink.
So it's only been two days.
Like, I don't think we should look into it too much, no?
look,
it's only
been three days
and it's just
nice to see,
as I say,
some signs of life.
You know,
if you're working
on a patient,
it's just nice
to get a heartbeat
every now and then,
which is just
just a sound of life.
One other thing
that I think we should mention,
this is probably a good time
to mention,
which is a great success
for us as the team,
myself,
you and Scott,
and the amazing community
that followed us is
we had a sponsor last week.
I'm not exactly sure
which sponsor it was
who took a sponsorship
on our show.
They gave us feedback to this.
They got 50,000
clicks onto the tweet link.
So, I mean, it just shows the power of...
Were they giving out?
Who was it?
So, number one, I'm like, I don't want to promote it too much, Ryan, even though we're proud
about it.
It was Scott, who was leading that show, so me and you get zero credit.
They're not a crypto company, but it was linked to.
They allow democratization of access to private equity for accredited investors in the United States.
Very serious, a big company.
Yeah, they got 50,000 clicks on their...
Hold on.
How do you get so many?
Like, did you just, Scott, did you just tell them guys...
Everyone that clicks wins money.
Everyone that clicks wins could win a hundred thousand dollars
worth a Scott coin or something.
But congratulations, Scott.
I think you were the one leading the show back then when me and Ryan
were filming so congratulations on the success of that sponsor.
Anyone that wants to sponsor,
The pin tweet at the top is where you can email us or just DM us, but preferable as email.
So check the pin tweet.
I'll retweet it on my account.
So you can see it as there as well, Ryan, you can retweet it as well.
But yeah, that's for sure.
I mean, those are all topics that we should discuss.
But I think another topic that I think is very, very, very much worth discussing today is a topic that we're not going to win any popularity contests for.
and that is
you know
I think that today
what I want to talk about
I've been trying to get
Kyle Davies
and Suzu
onto our shows
and really because
I want to talk to them about
three arrows capital collapse market implications i think it's no big secret that they're also
involved in a new exchange which is open exchange um and you know i've been quite vocal about the fact
that i backed them in the beginning um i bought the the flex token which was the original token that
that token done i think for me more than a 10x since since i backed them and uh the reason why why i did back them was
To be really honest, I met up with Kyle in Dubai when things collapsed and, you know, he explained to me that, you know, look, there's no criminal investigations against us. There's no fraud investigations. There were no fraud cases against us.
Yeah.
and it's just a liquidation.
We were too highly leveraged,
some trade wins against us,
and we lost a lot of money,
and we got wiped out,
and we got destroyed.
And my feeling at the time was to say,
look,
they seemed like very smart guys.
Anyone who could have built a business
that was that size must be really smart.
And the way that I like to look at entrepreneurship
is to say,
you know, if you don't take risks,
you don't fail.
And sometimes when you fail,
you shouldn't be punished for failing.
And if there are people that have failed,
the best thing that,
one of the best things that you can do is,
if you think that they have a point to prove to the world is to back them again.
Now,
I don't know.
Time will tell whether I was right or whether I was wrong,
but I thought what we should do is get Kyle here.
Sue's not here with him,
but Kyle's here,
and I think Kyle will answer questions.
And I think for us here,
it's a good opportunity to talk about,
three hours capital, what happened afterwards,
plans for the exchange if we want to get to it.
And I've been very clear that this is not an opportunity to shill,
this is not a shill fest.
They're not sponsors.
They're not paying for sponsorship.
I think it's a good opportunity for people who are maybe more skeptical than I am
to ask some tough questions.
And we've got a real opportunity to have Kyle up here with us.
So, Kyle, welcome.
And thank you for your bravery, sir.
Thanks for having me.
Can you hear me all right?
Yeah.
Fantastic, we can hear. So, Scott, since you're the skeptic, yeah, of myself, Mario and Scott, Scott's the more skeptical guy. I'm going to give Scott the microphone.
Yeah, well, Kyle, I think at probably around the same time that you met in Dubai, I sat with Kyle. I crashed a meeting, to be honest.
I don't think that he was meeting with me. It was with some others. But, and I, you know, to be quite frank,
Everyone knows that I'm a Voyager creditor, obviously, and the biggest hole in Voyager's balance sheet was the loan to three arrows.
And Kyle can tell you, Kyle, I mean, I basically sat down.
You were speaking with the other people in the meeting.
I said, look, Kyle, I want to know exactly what...
you know, Steve Erlich and Voyager said to you to, or what you said to them, uh, to get,
you know, a seven, 600 or 700 million dollar unsecured loan. Because for me, that was the personal
question I had. And I think it was hinting to the situation of three hours capital, why people
were throwing so much money at you guys at the time. And then of course, what you were doing
with it. And you actually gave me an answer that, uh,
I guess surprised me at the time, but makes a lot of sense.
Maybe I should just ask you the same question now, or, you know, what were basically you being having to tell people to get those loans?
Why were people giving you loans that were that big at the very beginning?
Yeah.
No, I remember catching up with you.
And it was a great conversation.
Yeah.
I think people just need to understand the context of the time.
This was a time when the lending firms were very much trying as a business model to borrow as much as they could
and then re-lend it out as fast as they could.
And then they would monetize.
Of course, they make a spread on that.
But they would monetize by then...
raising equity valuations of their own companies, right? Voyager included, but also blockfay,
you know, blockchain.com and others, right? And these were big valuations. These were
multi-multi-billion dollar valuations, right? And so the incentives are such that as you're growing
and you know, you have investors, they would have investors on the equity side, they would very much be trying to
to do as low due diligence as possible and to borrow and to re-lend out as much as possible,
as fast as they could and then try to re-raise the next equity valuation. And this was very much
the time. So on our side, obviously we faced only institutions, right? We had a handful of high
net worths, only accredited investors, but really if you compared us to any of the other firms,
It was very much concentrated only on several institutions.
And so for us, yeah, there really was not a large conversation.
I think this was not a high due diligence period.
Simply just explain we were a regulated hedge fund and, you know,
And that was pretty much it.
I think he probably decided before the call he was going to make the investment.
That's my guess.
Right.
They didn't need collateral.
They needed to lend because they needed to pass on yield to their customers.
Yeah.
I mean, that's true of a lot of the large firms.
I mean, Voyager included for sure.
But that's true of a lot of the large lending firms.
And I think I might have mentioned this before, but...
You know, anytime there's like a major, major collapse like this and Bitcoin crypto cycles
have seen several of them, there are some kinds of firms that come back, right?
Like we see exchanges again, we see hedge funds.
Sure, they'll change in various ways and I can explain the way that OpenX is thinking
about things a little bit differently and kind of revamp that model.
But there are also certain kinds of businesses that will die.
and that will fail. And the whole retail lending market structure in my mind is just completely gone.
It's not like, you know, one or two firms and it's not like only the firms that face us.
It's literally every single firm is gone and they're not coming back. It is a broken model, right?
So C5. I want to, if.
If you don't mind guys, just for the people that are not too clued in, Kyle, I want to take a step back and I'll give the mic back to Iran and Scott.
Just for the audience, who was Three Arrow's Capital?
And more importantly, tell us about when these decisions were made.
Explain what the bull market was, the craziness that we saw back then, the formal that we saw.
Just to give the audience an idea, especially people that didn't participate in the bull run or forgot it and the ice age we're facing now.
Give us an idea of running three hours capital during those times.
Sure.
So I'll skip through the background a little bit, but...
Three ROs was a fund that I founded with Suzu.
We started with just about a million dollars of our own capital in 2012.
And we started mainly trading in FX markets, had a really good run.
But by late 2018, we made the decision to shut every single other desk and focused only on crypto.
And by early 2019, we were...
One, I mean, we were putting on some interesting trades, mainly in grayscale kinds of products, that then became very large.
And it really set us up perfectly for the bull run.
When many other firms were probably trying to recapitalize, raise money, things like that.
We were structurally in a place.
We were lucky.
I mean, we had the timing, but we had some right direction.
But basically, we were perfectly set up for the bull run.
And it, yeah, it was wild.
I think, I mean, is it fair to say that when you say perfectly positioned for a ball and you were highly, highly, highly leveraged?
And then you were highly, no.
No, that's not hard to say.
So what I mean by that is you might remember the COVID dump, right?
In March 2020, Bitcoin fell to 3.7K.
I went into that day flat.
And that's what I mean by well set up.
Other firms were wiped out on that day.
We were not.
We were completely perfectly set up.
And in fact, we had been putting on some Grayscale,
our trades.
At the time, Grayscale was trading at a large premium.
And we were the largest subscriber to the Ethereum Trust,
for example.
So when that first came out,
Everyone was focused on Bitcoin.
Bitcoin dominance was close to local highs.
And no one was really thinking about this.
And we decided to put the majority of the firm's assets into the Ethereum trust.
No leverage.
But the majority of the firm's assets.
And it just so happened that during that year, Ethereum tripled.
The premium of the trust was close to 300%.
And so that was a kind of a nine-nex sort of a trade in a relatively bare market scenario, right?
Before the 2021 bull run.
So maybe just slow down a little bit.
So you started off with when you say you positioned yourself really well, how much money did you start off with like beginning of time?
We said beginning of time, beginning of when you said positioned yourself perfectly.
How much money did you have when you started to position yourself perfectly?
So I guess in 20 beginning of 2019 or so or the end of 2018, we took around 20 million or so and just said we're going to trade crypto only with this capital.
And that was kind of where it started.
Okay.
And then you grew the portfolio.
You had a couple.
We're going to talk about, we're going to talk a lot about how you grew the portfolio.
But you grew the portfolio, what is the maximum size of the portfolio from the $20 million?
Well, right before the Luna crash, so that would have been in April 22.
22, yeah, 22.
April 22.
Yeah.
Yep. April 22, we had conservatively marked like just under $5 billion, something like that.
And of course, we had a large venture book. So if you were to mark things up to where they were trading, then it's north of $10 billion or so.
But we, you know, we would mark down positions based on liquidity and things like that.
Okay. So now you took, you somehow managed to grow $20 million into...
let's call it $5 billion for round numbers.
Of that, how much money was new money that was invested into the fund
versus how much of that was actually performance?
Like how much of that, how much that was like throwing money at you?
that was zero money invested in the fund that was 100 percent performance we had the only
investors in the fund were my family and sue's family and um and then of course we had some
lenders that you know are now creditors but uh in terms of the like net asset value that it that is
to say the lps in the fund that's 100 percent performance
So you grew $20 million to $5 billion or conservatively $5 billion.
You had zero outside investors, but you had a lot of, you had a lot of loans.
And you were getting these loans from the C-Fi lending companies. Is that right?
That's right. Yep.
Okay. So now, I mean, that's, first of all, that's unbelievable. Before I talk about how all of that went wrong,
Tell me what you did to get, what did you guys do right to get?
Because I'm quite a smart investor.
Mario will tell you that I'm a really, really, really smart investor.
But I could never turn 20 million dollars into $5 billion.
You can turn the other way around, $5 billion to $20 million is what I would say.
What did you guys, what did you guys do?
What did you guys do so well to be able to turn $20 million into $5 billion?
What was the secret source?
Sure. Okay. Well, I mean, to be clear, first I turned one million into 60 million in FX markets. So this was my, this was like the next, this was the second big trade that we were doing, right? In, in crypto, but in crypto, I guess we started off doing what was considered to be our trade in
So there was the futures basis, which would earn something around 20% annualized.
There was the gray scale trade, which would earn 30% something annualized.
And these were kinds of things.
And then there are smarter ways that you could scale in and out of these.
And Kyle, just the basics, just sort of interrupt.
But when you say arbitrage, can you just explain very, very briefly, like 10 seconds, what arbitrage is?
So the futures basis trade was buying spot and then selling a future.
And the futures were trading at premiums because people were bullish and they want to buy it on leverage.
And we would say, okay, we can just earn that basis.
And it doesn't matter if the price of Bitcoin goes up or down.
We're just looking at the spread between the spot market, the Bitcoin, and the future on Bitcoin.
And if you wait until the future is expiry, then you could earn that premium.
Another way to think about it is perpetuals are also very popular in the crypto market.
And you can look at the overnight funding rate and trade that as well.
Okay, so you guys did a whole lot of arbitrage trading.
I mean, that doesn't take you from...
10 million to 20 million to 5 billion.
Tell me more about how else you do it.
I'm really trying to...
Yeah.
I think your story is...
I think the story of how you lost the money is a very interesting story.
And we'll talk about that next.
But I think also interesting is how you made the money
because I think there are a lot of people listening here going,
if these guys manage to turn X amount of money into $5 billion,
I want to know how they did it.
Yeah, sure.
So...
The reason it's interesting to put it against that backdrop is to understand the pent-up demand for Bitcoin.
My interpretation of the market in 2019 was that
people were so bullish on Bitcoin that they were willing to pay a 30% or 20 plus percent
premium to put it in to buy, you know, in their in their 401 case, which you wouldn't be able to buy
actual Bitcoin, but you could buy the gray scale Bitcoin trust.
And so there was an enormous amount of pent up demand for Bitcoin.
Also, if you looked at the leverage markets, the derivative markets, people were willing, were so bullish that they were buying Bitcoin on leverage and pushing the premium up to, you know, 30% annualized premiums.
And my interpretation of all of this is that there was so much demand that there simply had to be more fiat that had to come into the system and arb that demand, right?
The way it work is you could borrow dollars buy Bitcoin and sell Bitcoin future.
And that would be like a closed loop, right?
And the more, if people, if a lot of people did that,
then eventually those premiums would go to zero, right?
But at that time, that was my interpretation of the market.
So the reason I mentioned that is not only, I mean, our background was arbitrating.
So we would do that, but we would be, we convinced ourselves to be very bullish during this period.
And so we would also...
go long. We would keep, started off just keeping profits in denominated in Bitcoin or Ethereum.
And then eventually, after the COVID dump and we saw firms completely wiped out while our
balance sheet was perfectly intact, we just decided, you know what, this is a once in a
lifetime opportunity. We're not going to denominate just our profits. We're going to denominate
the whole balance sheet.
And that's when we started to do really, really well.
And when you say denominate your whole balance sheet, what you're saying is that you took your balance sheet, any money and all money that you made, you put the profit into into crypto, initially Bitcoin, but then a whole lot of crypto, right?
Exactly. So we treated it as a as one book, right? And so one component of that book was Bitcoin, also Ethereum, but then we also did some venture kind of trades later. And that was something that, yeah, I mean, there are lessons from later. Maybe we talk about that after, but in the in this stage,
let's say the 2020 and then early 2021,
we believed that there was going to be a large layer one thesis.
And so we, you know, this was a time when there were,
the layer one protocols had these big clips
where venture firms were able to invest earlier.
And then there would be this vesting period
where they would have unlocks and they'd be able to sell.
It was at that time that we were high conviction enough that we said, okay, we're going to buy all of these unlocks OTC.
So we're going to go to someone that's worried about it dumping on that price, and I'm just going to buy everything they have.
And Alameda did something similar.
There were some other firms that did as well.
But basically, we bought a ton of things like Pocod and Solana and other protocols.
And...
As it turned out, you know, on the Pocodot launch, I think if you asked, like it did a market poll the month before the unlock, everyone would have said, oh, this is going to dump back right back into the ICO price.
And what happened? It never traded...
like below the OTC market.
It traded up in a straight line because everyone had bought the unlocks.
And so this was maybe the second big trade that we did.
First was grayscale.
Second was all the layer one unlocks.
And then followed by a lot of ecosystem kinds of trades.
Now, at this point, how many people are working at three hours capital?
I mean, I know it's you and Sue as partners, and you guys had a partnership before you actually, before, or early on in the game.
Tell me about how many other people were working at three hours at this point in time.
So we were, I have never been good at hiring lots of people.
So for us, we were always kind of a small niche group.
I know that I can manage well, maybe 15, 20 people, but above that becomes really hard for me.
And so we had separate groups.
So we had, for example, a DFI group that focused only on DFI.
And then eventually we had an ARB team that focused only.
And so they would be more technical and they would write, you know,
you know, arbitrating stuff. And we had, um, a eventually an NFT team that would focus only on
NFTs, right? So it was okay for me to have those separate groups, but in terms of people that
I was talking to on a daily basis that were kind of managing the, the greater book, um, it was
really never more than like four, four, four, four, four people and majority just focused on it.
So initially you started doing arbitrage trading.
The second big trade is the grayscale premium discount trading, which you guys were masters at.
We'll talk about that.
We'll dig into a couple of minutes.
Then you started to buy unlocks because you were more bullish and people thought that
because these tokens were going to unlock it was going to push down the prices on the market you
guys said no no no it's up only we're bullish we're going on on those bullish thesis you were buying
these unlocks presumably at a discount from people who wanted to sell them OTC at a discount and then
you were selling into the strength or maybe even holding on after the strength is that a good
summary of where we're at that is a perfect summary and i think my biggest regrets in that
period by the way we're selling too early i mean
I mean, I was getting Solana at like, you know, 20 cents in size,
and then selling it in like the high single digits
and then watching it go, you know, 10x from there
and feeling like an idiot, meen.
So, yeah, most of my regrets were around,
at that time, were around selling too early.
And then we bought back some later on.
We traded them around.
We like to trade the...
the Bitcoin versus ETH dominance.
We liked various kinds of Psi's over time.
A very schematic kind of a trading firm.
walk us through
just give me a couple
more feces
that you guys
like hit the ball
out of the park
so like the
GBTC one
you mentioned was great
the buying
of unlocks
is super
educational
for you know
these are things
that for me
I'm sitting here
and I'm writing
all of these things
down going
you know
in the next
bull market
maybe a good idea
is to trade
the up
only narrative
so what I mean
give me one
or two other
narratives that
that you guys traded and and helped you get from wherever you started,
10 million, 20 million to 5 billion.
Defy Summer. That was the next one. So we recognized very early that defy was going to be a big thing. We recognized that we were not the people to do it and we needed a team. I messaged the three smartest people I knew and offered all of them money. Only one of them took it and that became Defiance Capital.
The other two did very, very well, but raised no money.
I tried to force them to take it.
They still didn't take it.
But Defiance did.
And then...
And then we were through that process able to learn very, very quickly about the DFI space.
And so I think if you go on Nansen today and you go look at the big farmers from, you know, first compound, then AVE, then, you know, YFI and others, we would still be a top three, like one, two or three farmer of all those protocols.
And that was something where...
Yeah, the so-called yields first in spot futures are then in grayscale.
Well, at that period, the best yields in the market were in DFI farming.
We...
stopped doing that right around after the, like, yams.
I think that was the last one we looked at.
And then a lot of other people, you know,
they got very, very risky after that period.
We thought it was not worth the risk.
And so we stopped doing all farming, basically, after that period.
We didn't have any losses or anything.
We just saw, actually, the thing that scared me the most was when, you know,
YFI I thought was uncomfortable for me, but we still did it in reasonable size and knew some people that were doing it that we thought were pretty smart.
Sushi scared the crap out of me because I saw...
the amount of capital that Alameda put in,
and I knew they didn't have it.
That was the thing that scared me.
So I knew that he was using funds either from clients
or an enormous borrowed way.
But there was just no way that he had a billion dollars at that point.
Kyle, how did you know that?
How did you know that?
Because we had actually...
seen the early FTX, you know, investment decks and knew that they just didn't have that much money.
Like, I think the deck I saw, he had $3 million.
So for him to have like a billion dollars, you know,
You know, like a year later made no sense.
And the thing is we were all doing the same trade.
So I knew approximately like what people should make, what people should have.
And for him to make that move at that time, I just, I mean, it wasn't just us, by the way.
I mean, if you go back and look at other people's tweets, many people were speculating that this,
you know, could have been client funds, for example.
And now I'm, I think we're pretty confident.
It probably was, right?
And why?
So that's interesting, Kyle, behind the scenes, what were some of those discussions you had
with others that had similar concerns?
And why do you think it kind of got buried away?
Well, I mean, we were very, very vocal about the first deck we saw too, right?
And, um,
So the first deck was just a flat out fraudulent deck, right?
It said the last line of the deck says 20% guaranteed returns can't lose money under U.S. law.
That's almost a direct quote.
And the AUM was their assets plus their liabilities.
I've had something like $3 million, but they were reporting it as around 80, I believe, something like that, which was actually their borrowed.
They were also trying to raise funds.
It was a different time.
So, yeah, my point is there were many times where we pointed out things left and right.
But there's no return to that, right?
Like I don't, I don't, I didn't make any money from that kind of thing.
So there's no extra incentive for me.
Yeah. Okay. So, okay, so, okay, so you now, you've done all these trades. I think towards the end of the, the end of the ride up, I think you guys were very active VC investors. I think we're a VC fund. And I remember that you guys were in a lot of the protocols. You were very heavy investors in Luna. You were very heavy investors in the lunar ecosystem. We saw CRS Capital on the cap table on a lot of these very, very early stage investments. Walk me through what you guys were doing there.
Sure. So, um,
I guess we, at that time, we were probably doing more ecosystem kinds of investment.
So I said first we started with layer ones. We also invested in an exchange. We invested in
Deribut. We were the largest shareholder. And then we invested in, but mainly we invested in
ecosystems built on top of the layer one. So the thinking was given that we were, you know,
a large investor in, let's say, avalanche, made sense to invest in avalanche projects. And
We were also a large investor in Ethereum, like made sense to, and a lot of the D5 in the early days was just on Ethereum. So it made sense to invest in things that were being built on there. A lot of that is just natural. If you have a lot of.
Ethereum tokens and you're investing in a farming protocol or like a protocol that uses Ethereum in some way.
It's very natural that the larger holders in there would get good terms to invest in those projects.
And then that kind of just snowballs, right?
Once you invest in something that does well, then other people want you to invest in the next thing.
You know, if it's good because you just build this brand and this name, right?
Right.
So yeah, I think that just kept going.
But you know what?
If you want to tie it into the 2022 kind of era,
that was when a lot of protocols were doing these discounted rounds.
And so I think the first one we looked at was Avalanche, which we led.
But we also led them in, you know, near Luna as well and others.
And the concept of these...
I want to be clear on the concept of what these discounted rounds are,
because a lot of people are sitting here listening going,
what is it discounted round?
Correct me if I'm wrong here,
but this is when the founders or the foundation,
depending on the protocol,
sell tokens that are trading at a high price
and sell them at a slightly lower price,
and they typically sell these two funds,
that they believe will add value to the ecosystem, right?
So like if Avalanche is trading at, say, $20 and the Avalanche Foundation thinks that you're going to be a value added investor, they have a certain allocation of tokens and they sell you tokens at, say, $10 instead of $20.
And typically those tokens have some kind of lockup period.
So you typically locked out for either 12 months or 24 months depending on the lockup.
Is that right?
Yep. So these were the rain, just to put some approximate ranges on this, they were all from the foundation, by the way. They were between 40 to 55% discounts. And the vesting periods were from two to four years. So, and by the way, that was another reason why generally a lot of founders liked us investing in things. We never sold any venture.
positions in general.
There were maybe a couple of...
Because you were bullish.
Because you were...
Because I regarded it as...
So for example, we were also famous for in December 2021.
We're probably the largest seller of Bitcoin above 60K, right?
And even short of the market a little bit.
And so I think we were very happy to trade around Bitcoin and Ethereum.
We just had this mentality with our venture book is that if I get in the habit of,
investing early, getting good terms, and then dumping it, that would be very, very bad for the team,
for our reputation, for them, for everyone. And so for venture, I had a very different mentality.
I just said, if we invest, we're in this for the long haul. Let's see this go to the moon.
Some will win, some will lose, but we're long-term believers. And founders very much appreciated
that. So if I wanted to trade or I wanted to hedge, I would just hedge a little bit more in Bitcoin or something.
Okay. Now, I mean, last question before I get to the crunch time, but what was it that how did you guys have such good access? Because when I looked at the deals that you were getting into and even more so when I looked at the liquidators sheet citing the investments that you guys held.
I mean, you guys had access to everything.
I mean, you guys were, you literally had access to all the deals that everybody that I know was trying to get into but couldn't.
How do you, why do you think that you guys got such amazing access?
It's just one of those things.
Okay, I think there are a number of things, but I think it's just a build up over time, right?
We were known as a fund that never sold venture positions.
We were known as thesis-driven people that so when we invest in something, it's not just because
we were offered it.
It's because we specifically have a D-Fi thesis or we, you know, and we believe, we believe
in what we're investing in, right?
And then we were also known as maybe somewhat of a gateway to Asia.
So...
you know, Starkware, we were, you know, a very big investor in.
They were predominantly invested by, you know, US, maybe one or two European funds.
But like we were the big Asian investor, right, being based in Singapore.
And you had unbelievable momentum.
You had unbelievable momentum.
And I think momentum carries investors.
Yeah.
I mean, I think when you've got momentum, there's nothing more powerful.
All right.
So that's the buildup.
You've taken $20 million.
It's not $5 billion.
Now tell me where it all starts to go wrong.
So I want you like, great.
Like there's one point where your balance sheet is $5 to $10 billion.
You have loans.
What was the value of the loans before everything collapsed?
So let's start with December 2021.
Okay, great place to start.
I'm on Lake Como.
I've got a nice villa with my family.
And Sue calls me up and says, I know you're on vacation.
I know we have a flat book.
We've just sold all of our Bitcoin over 60K and we're net short a little bit.
Guess what?
Bitcoin's now 47K.
The market has crashed massive liquidations.
Do you want to buy?
And...
Of course I want to buy, right?
Who the hell doesn't buy liquidations?
So that, if I had to pinpoint it, I would say not having a committee to decide these things,
being able to call someone on vacation who makes a decision, you know, that kind of stuff.
That's...
I if I if I depend there were there were maybe two instances where I really should have had a wake up call that was one
The other was the our crypto team was actually founded by
A couple of other guys that we ended up aqua hiring right and
They were they became you know junior partners of the fund
And then they decided to retire after a while they got rich they said I want out and I said sure and I bought them out and
And they were very happy about that.
And they moved on and we're still good friends with them.
But when that happened, I should
I should have said, wait a second, we just lost two partners.
We need to replace these with either partner shoes or, like, a team, and institutionalized.
And that really was the start of when things were not great.
But at that time, you also have to remember that three months later, you know, we doubled our money.
So being, you know, brash and young and having ego, I just...
You know, it was hard for me to see that at that time.
So, yeah.
So you bought that really.
Just to be clear, Sue Funger, you said, we've had the dip.
There's forced liquidations.
Bitcoin's at 47 grand.
Do you want to buy the dip?
And you said, hell yeah, I'm fucking buying a dip.
And you went up and bought the dip.
And you end up making money on buying the dip.
Well, we make money at first, but then, and the dip was, you know, it did bounce.
And we didn't buy that much, to be fair.
It was a smaller part of our book.
But that was the catalyst to then, you know, basically us trading like the, you know, the bounces all the way down, basically.
Yeah.
Okay, now, at this point, at this point, how much money do you owe the lenders?
How much money do you owe Celsius, Block 5, Voyager?
I don't have the list in front of me, but like at this point when things are going relatively well,
how much money do you owe the unsecured lenders?
So I should explain one thing.
I'm happy to answer that, but let me just explain one thing first.
Depending on the position of the book,
we have different borrow needs.
So, for example, if I'm long a lot of Bitcoin,
then I would want to, you know,
I would generally be borrowing, you know,
dollars against that, right?
And if I'm short a lot of Bitcoin,
then I would be borrowing a lot of Bitcoin, right?
And so it's different.
And so in December,
when I am actually pulled almost no Bitcoin
and I'm short, actually, right?
And then,
I actually want to return a lot of borrow to lenders.
I am getting pushback from them.
And they are saying, what do you mean you want to return like a billion dollars now?
You can't return.
Like they're getting like pissed off at me because they have obligations on the other side.
And they don't like to see the book moving around that much.
They just want to say, okay, you have like whatever, a billion of our capital.
Like...
Just hold it.
Like, let us, we need to earn the interest from you
because we have an obligation on the other side
where we also need to pay interest, right?
And so we have numerous people pushing back at us
at that time.
But then, yeah, like the borrow book stays around the same size.
We just swap, let's pay, Bitcoin for dollars, more or less, right?
Okay. So you've got, you're right in the wave, you've got this, you're now taking on these loans.
Now, the leaders are looking at you guys and saying, these guys are bulletproof. These guys are phenomenal. These guys, everything they touch turns to gold. These guys are in all the best round.
And they just saw me short.
They also just saw me, lenders know my general book positioning because they can see what
I'm borrowing at any given time.
And they saw me to short the market in size and make a shit ton of money from it.
So yes, that is the context.
Okay.
And now, now start telling me where it goes wrong.
Start telling me where the whole thing starts collapsing.
So I know how it went up.
Sounds like a great story.
I've written down.
I've got a whole lot of notes here.
I've got a whole lot of notes here.
I'm pretty confident that in the next blue market, I'm going to.
I'm going to turn $20 million into $5 billion,
but I want to make sure I don't go wrong.
So walk me through where it starts to go wrong.
Well, you should not invest in Luna.
That would be a mistake.
So how much did Luna,
how much of your fund slash book slash wealth
did Luna actually wipe out?
Luna itself, not an enormous amount.
We invested only in the LFG round,
which was about $200 million.
They raised a billion dollars, jumped, led the round,
jumped at 300, I think.
We did 200.
And then Luna tripled.
So...
Mark to market, I guess on paper, it would have gone to 600, and then it would have gone to zero, right?
We had no UST.
So if people remember, the Luna Protocol basically has this stable coin, and then they have this collateral coin.
We only held the collateral coin, which was called Luna.
And yeah, so it was...
painful, but it was not devastating by any means, right?
Like we were a very large fund.
What was devastating is what happened after Luna.
And basically what happened is every balance sheet trading fund...
took huge hits and none of the lenders knew who was taking the hits or how big they were at various times, right?
So Alameda, Celsius, us, like a couple others.
We were known for doing what I'm calling balance sheet trades.
That is to say that you would try to earn like yields on like large balance sheets, right?
And, um,
And basically, yeah, so all the lenders at the same time start recalling loans.
We honor all of them.
I estimate around a third of our book of the loan book gets recalled around this time.
That is very easy to do.
The problem is...
Every single trade that we have on is also going against us at the same time because guess what?
Every other large balance sheet trading firm has the same trades on.
So gray scale discount is blowing out to a bigger discount.
The layer one discounted rounds that we're doing are all dropping like incredibly fast relative to the market, you know, as well as Bitcoin and Ethereum.
Staked Ethereum.
is breaking its peg, right?
All the trades that you would do
as someone with a large balance sheet
trying to earn various kinds of yields,
all those kinds of trades would all go against you
at the exact same time
as these loans are getting pulled out of the market,
not just,
from us.
Yeah, but, but, but, but, I mean, what you're saying here is that this is, this is not a problem with a,
with a balance sheet that's not leveraged.
I think when it does become a problem is when you're leveraging, when you're doing this and
you've got leverage and your assets are illiquid.
and you have leverage to the lenders and whatever else.
Because if you were using 100% your own cash and your own book,
this wouldn't be a problem.
We just sit and get right out the bare marks and there was no problem.
What you're saying the problem was,
was that you guys had high leverage.
Because you had high leverage,
everyone started to recall their loans.
Because everyone started to recall their loans.
You guys eventually got to a point where you just couldn't pay back for loans.
We have lots of gross leverage.
Gross leverage is having a long and a short.
And lenders, by the way, are aware of this because many of the loans are collateralized.
So they literally hold my positions.
My positions aren't even nothing of a secret in terms, at least of the ones that they can.
So venture book a little bit hard to borrow against.
Actually, many positions impossible to borrow against.
But for like, let's say a little bit more of the liquid ones.
you very much could borrow against.
And the lending firms were holding those as collateral.
So they're very much aware of like some general composition kinds of ideas.
But yes, we very much as the, we are losing money, you know, on outright long positions.
We are also losing money on balance sheet trade positions, right?
So the idea that I might be able to do a...
you know, a gray scale trade or or stake Ethereum trade or whatever and hedge.
So in theory, I don't care whether price goes up or down.
But I might do that on on bigger gross leverage.
However, if I then start losing money also on directional positions,
then all of a sudden my leverage starts to go up a lot, right, very quickly.
Because a lot of capital is being pulled out of the system at the same time.
Okay. And again, I'm going to go back to Scott's question. And I'm going to make a statement here. Let me know if my statements may be unfair. The lending companies gave you guys uncollateralized loans or semi-collateralized loans. Is that right?
It entirely depends.
It's not, it's not fair to say one or the other.
In the case of Voyager, which Scott is well aware of, that was an uncollateralized loan.
In the case of, you know, Genesis or maybe some other firms, they were majority collateralized with something, usually shares of great scale or Bitcoin itself or Ethereum or whatever, right?
Yeah.
Yeah.
On the minute that, so, so if, if, if they were collateralized against a gray scale share,
and that gray scale share started to decline, all of a sudden they were uncollateralized, right?
Exactly. And so what would you expect grace scale, or sorry, Genesis to do?
You'd expect them to call more collateral. In fact, they don't. This is, this is because, um,
All of the lenders, remember, are under pressure to lend out, actually.
Yes, they recall part of their loans, but in particular, Genesis, they are doing the
opposite.
They lend us not just for the case of Luna.
They are lending us not just against the $200 million that I invested.
But remember, I invested $200 million at a 40% discount.
They're lending me against the market price.
Why?
So I'm actually able to borrow $240 million.
having just invested 200 million in Luna.
And why am I able to do that?
It's because they're absolutely dying to lend out more and more capital.
They do not want me dumping gray scale shares in the market.
They do not want to see their loan books collapse.
They want to see credit just in an ever-expanding way, right?
And that's true of a lot of firms.
So that is the background that you have there.
Okay, so then at some point the market continues to go down even further.
And then at some point, the collateralities lenders are holding as much, is, is, is not worth the loans.
Do they call you and say, please send us more money?
No. See, that's the thing.
Grace scale, I sorry, Genesis, I keep confusing them.
Genesis says we will lend you against the share, against the Bitcoin value of your shares.
they don't care that they're at a 30% discount they will still lend them at the bitcoin value
so they will be 30% uncolateralized at least on that not more and then even lend more on top
and that is yeah that that is the that is the whole system okay now i just want to again confirm
for because i think there's a lot of people here that are thinking you know this is a fund and
they lost a lot of other people's money at this point
Other than the lenders, and let's like the rube fence the lenders, who else has given you money inside your fund?
Sue's family, your family, you mentioned, yourself and Sue, I think you mentioned.
Who else at this point is invested in your fund, so to speak, excluding lenders?
We have a couple share classes, the largest of which, about 95% of the fund, is my family and Sue's family.
The other 5% or so are specific share classes that are geared at specific kinds of things.
So one was for defiance to focus on defy investing or venture style.
Another one was called Starry Night, which focuses on NFTs.
Those are the two main ones.
But basically, those are...
It's very clear in all documentation that there is no segregation of funds, that there are, you know, it is like everything is in one fund, right?
But for ease of onboarding and use and all that kind of stuff, you know, we agree that it is faster to do it as a share class, not as a segregated fund, but as a share class.
I want to just, I think those are also in the fund.
Okay, so now I want to, I think, I want to try to get into a position where I really understand here.
When you guys lose this money and go insolvent and whatever else, are there investors that lose money with you or only people that loaned you money?
Who are the, because, you know, if, yeah, I'm trying to, I'm trying to, like, ring fence the lenders and, and the investors that gave your fund money and now, and then lost money.
So the first group to lose money is the partner share class.
So the 95% that I keep talking about.
That is, so as we go to zero, the first group to lose money is that.
The next group to lose money is other share classes, which would then get hit as equity.
Right.
And then the final group to lose money are lenders to the firm.
That is the other.
Okay. Okay. Now, okay. So now we have, we have the lenders, the different share classes, and then we have the lenders, et cetera, who are losing money.
Now, walk me through the point where you go to where it actually, where you get into, where you decide that you have to liquidate.
or that it's going into liquidation.
Unfortunately, yeah, it was not our decision.
So there is a, one of the lenders decides to file,
I forget what it's called, but it's like a,
it's some sort of official filing that we have not met a margin call.
And when they have done that, now that kicks off a process
with all the lending firms because in their agreements,
they say if this firm has
any kind of like insolvency issue.
Now we must also recall all the collateral, right?
And then there's a period of, I think, a couple weeks
where we're doing zero trading,
we're doing nothing really.
We're just thinking about what the next thing is.
And then our one of the
creditors ends up filing for bankruptcy. And the bankruptcy, which the judge granted is a Chapter 15, which
which is chapter 11 is where the directors can still operate the company and then maybe it will come out again.
A chapter 15 is like dead, gone. You are not in control. You can go on vacation if you want.
You are out. You are not in no way in control of the fund anymore.
And that is the one that we were pushed into. So at that point, there is a liquidation company that comes into play.
Their job is to sell assets and distribute those.
Okay.
So they call, I think, I mean, I don't know what that's called in legal speak, but effectively they're saying that you've defaulted on a commitment and they request for you to make good on your commitment at which point you say, hold on, I can't really make good on this commitment because I don't have cash flow. I'm out. What happens next?
Well, what ended up happening is the creditor filed for a full liquidation, right? So not a partial
liquidation, not a judiciary, like a full Chapter 15 liquidation. And so at that point, it is no
no longer in our control anymore is what ended up now now what contact are you in contact
with this with this creditor are you saying are you working with this creditor and are you are you
giving them a plan are you saying look um we this is where we're at we think this is going to
happen uh i think we can try out or is this all happening via legal documents
We try at first to have those conversations.
They are very, very hard to have.
Media, like, is making all sorts of noise.
You know, creditors, not happy, like, all sorts.
This is a very hard conversation to have.
We are still in communication, though.
And we are talking about potential buyers, by the way.
We, you know, even have a couple of, you know, lined up that we are talking to.
But...
uh actually one of my biggest regrets of that period is that we didn't just uh completely block out
all media and focus only on creditor like next steps and i think if you looked at some of the
other there have been now many bankruptcies across the whole industry right if you look at some of the
other ones um
they actually were able to find ways to restructure.
CoinFlex very famously, you know, restructured and successfully now is, you know, has become OpenX, right?
So, so that would have been possible.
But for us at that time, I don't know, maybe I'm just too immature or I was not able to have those conversations.
And then eventually a creditor just said, that's it.
you know, we're going to file for full liquidation.
And that really just takes the, you know,
that at that point, I just have zero control.
And so that was the next step.
Okay.
So now you go into liquidation.
Now I wanted, I want to like,
I know it's quite hard because it's been a long time since then.
But I want you to walk me through what it felt like emotionally for you guys.
And the reason why I ask that is because before this,
you were high flyers.
You were the two blue-eyed boys of crypto.
I mean, when Sue used to tweet or when Kyle used to tweet about a protocol, people used to ape into the protocol.
There were only good articles written about you guys.
Everyone was saying how smart you were.
And then you went to a point where you publicly lost everything.
And not only had you publicly lost everything, but...
At that point, there was no...
At that point, we hadn't realized that all the lenders were that exposed.
So there was like a lull between...
You know, the time that you guys went into liquidation and the time that we then realized that all the lenders were actually going to get liquid or to get casualties as a result of this.
Walk me through what's going on in your head.
Walk me through how you're feeling.
Because I know that I've had some big losses and it was very hard for me then to face the public again and to face people around me again.
How was it for you guys?
Yeah, I mean, it was difficult.
So we had, first of all, we lost an enormous amount of our network, right?
The vast majority, right?
So before you carry on, before you carry on, before you carry on, before you carry on,
how did you feel losing the money?
Like what was in your head?
when you had lost the money, walk me through the calculations if we're going on your head.
I'll give an example.
Like, when I lost a lot of money on Luna, and I lost, I mean, nine figures on Luna.
Is it nine figures?
Scott knows.
Yeah.
I lost nine figures.
Yeah, we discussed.
Nine figures.
I was thinking about how I'm going to have to change my lifestyle.
I was thinking about the different schools that my kids would want.
I was thinking about how much less freedom I would have in my life because I had a lot of freedom when I had a lot of money.
I want to try and understand in your head, what were the calculations that were going on?
Were you like, I've lost everything, or was it I've lost most things?
Was it I'm going to get up again?
Just like walk me through like the calculations that were going on in your head.
Well, I'm also getting death threats.
So I am not focused specifically on the...
I was also getting death threats after that.
If it makes a difference, I was also getting death threats after that.
So, I mean, I know exactly what it's like.
Okay, well, basically, I am feeling that I just don't know what, I just don't know.
And I'm, I occasionally am reading the news and Twitter and stuff.
And the things that I'm reading are like death threats to, you know, really terrible, terrible things that are not true.
But like, it doesn't matter what I say.
Nobody wants to hear that.
And so at a certain point.
You know, we get, you know, lawyers,
uh we they they sit us down and they they have a real real conversation with us and say listen
like this is what's going to happen this is uh you know you guys are going to be fine here totally
fine here you're just like the media is going to be like this this is how we're going to play
this and they were a hundred percent right like in retrospect but i just i almost didn't believe
them because i'm reading other things online and i'm like yeah but what about this yeah but what about
that and
And it's scary.
And so yeah, at a certain point,
we all made the decision,
you know what you gotta do?
You literally have to turn off all your devices.
So I think from like July to September,
I just didn't read Twitter or anything anymore.
and sat on a beach in Bali and what you know read I think I had a stack of maybe 15 or so books
and is there anything else and Carl is there anything else that is there anything else that you
could have done to maybe make the situation better like it just feels to me like like if I
fucked up in the most respectful way possible if I messed up that bad
then like surely I instinctively I think to myself I would try my best to salvage a bad situation and it just feels to me like being on a beach in Bali is not doing anything to salvage a situation in hindsight now that is there anything that you could have done to help help salvage the situation
So for the two-week period between when we got the, you know, the margin call, the last margin call notice and the liquidation, that absolutely, I have lots of regrets that we, you know, we really weren't doing anything else.
We did no trades. We were not borrowing lending. We were not doing anything. We were just sitting in a room and we were thinking about, you know, things that we could have done together.
you know,
differently.
We're thinking about
the past too much.
We're also
trying to have
conversations with
buyers and
creditors.
But that,
if there was a way
to drown out
like the,
the people that didn't matter,
right?
Like media and people
people that were not affected like drown all of that out and instead focus only on creditors
how can we do restructuring that dirt that critical period could have could have resulted in very
different things and or if the firm was put into a chapter 11 right then we would still be in
control and then we would still be working with you know
you know, creditors to figure out the best way to go forward. I think a couple of them were
asking us to launch a like a debt token. There are a couple of the firms that did that and those
are trading, you know, some of them better than others, but basically that would be another way that
people could get value and we and then we could have another project. There would have been many
other things. But as it so happened,
We did not have the luxury.
We were put into a chapter 15.
So if you asked me what I could have done in the following three, four months or whatever,
there is nothing I could have done.
Zero, absolutely zero.
The only thing that I should have done is spend time with family because ultimately that's what actually matters.
And what about the critics?
And what about the critics that say that you went to Bali because the U.S. doesn't have an extradition agreement with Bali?
You went there because it was a place where most countries didn't have an extradition agreement and that you could, you know, that was a place where you guys could effectively take refuge.
I mean, if that's the right word.
Like there's a lot of people, there's a lot of people that believe that you went to Bali because that was the case.
What's the answer to those people?
I mean, okay, frankly, people were not listening to me, but the real reason, that Bali
actually does have extradition with the only country that matters to me. I'm not American.
I'm Singaporean. They could have easily sent me to Singapore at any time. They, so it never
had anything to do with that at all. I mean, I was just in Spain when I did the latest article.
Like, I freely traveled around all over the place. So it had absolutely nothing to do with that.
It generally is a good place to be.
I mean, if you want to sit on a beach and, you know,
kind of just disappear and relax and be with family and read books,
it is a wonderful place to be.
You know, I can't, Carl, I can't get my head around this.
And again, maybe I just didn't click on the onset,
on what you said as the answer to question.
But if I just lost a whole lot of money,
if I had lost billions of dollars,
if I'd probably lost my kids' education funds and whatever else,
To me, I think the last place in the world that I'd rather be is reading a book in Bali.
I think I'd be, I don't know, I think.
I was, yeah, okay.
I was very much after about two months pushing, because Sue was also there,
pushing Sue to like, hey, what's the next idea?
Can we start, like, should we be starting a fund?
Should we be doing this, this, this, this.
And he was like, you know what?
This is the time where the media is still going nuts, right?
This is pre-FTX going down.
Our biggest defamer at the time is SPF, right?
And he is out there saying outrageous things
that we like borrowed off the same collateral multiple times.
He said that on some video and he said all sorts of stuff that
Like it's been over a year now.
If there were any of these kind of issues, we would have serious issues, right?
But in fact, there are none.
And so all of that was just pure straight defamation, probably, you know, in their own interests, right?
But that was that context.
So yet for me to like, I don't know, do a startup two months later, Sue was right.
So to be clear.
So to be clear.
At this point, there is nothing that you can possibly do to help three RAS capital.
Zero.
We have no control.
We have been relieved of our duties as directors.
A new company has come in.
They are in full control.
They take control of all the assets.
It is their job to then sell them and distribute them.
They just sold some of the NFTs on Sotheby's like a couple weeks ago.
So is it's a hundred percent in their control.
Is it similar to what happened when John Ray took the company over from SBF where it's like,
listen, I don't want to talk to you.
Like, get the hell out of here.
Now I'm doing my job.
Like, walk me through it.
Because I would think naturally for me, there would be an explanation to try and help
the liquidator recover as much as possible because I'd just feel bad for people who've
lost money and I'd feel guilty.
Is there nothing that you can do?
Is there nothing that you can do to help you?
So we are required actually to provide a full affidavit, which we did of all assets and to hand over, you know, keys and things like that, which we did for everything.
So after that's done, no, there is nothing we can do. And it is entirely up to them to sell assets and move on.
okay so before i ask the next question i just want to get to a point where i understand this now
cierra's capital is gone there's nothing that you can do actually i'm going to be quite honest that
i i i approached you at some point here and i said karl is there a play here where i can buy your
raise money to buy your entire vc portfolio from the liquidator and you said to me the liquidator
has an incentive to drag this thing out for as long as possible there's no way that they would accept a
a low, a low ball bid.
Because what I wanted to do was to try and raise money in the open market and give the
liquidator a low ball bid for the assets.
And you said to me, there's no way, this is a long, drawn out process and there's no
way for you to make this shorter.
I mean, you still stick by that, right?
Almost every VC reached out to me, tried to do something similar, so much so that I wanted to do it myself.
It's actually very popular in TradFi.
If you have a debt firm that blows up, you then raise a second fund to go buy the liquidation of your previous fund, right?
So I...
That would have been like a very good value for a lot of people.
And if there's a fair auction process, then the creditors can also get a good value, right?
Okay.
That is very much not what's happened.
So if you look in the case of our liquidation, for example, it has now been a full year.
There have been no distributions at all to creditors.
And the first sales that I'm aware of,
are the NFTs that they sold on Sotheby's.
Maybe they sold a dozen of them or something.
So it is very much going to be,
just look at it, and this is not specifically them,
but this is the whole liquidation.
Liquidators are not paid an incentive
to act faster, early, or get good value.
They're paid by the hour.
They want this to last a decade or more.
And it will.
And that is just the way the system works.
So there are some mitigants to that.
There are creditor committees that have some influence.
If the liquidators are negligent, then if that's too far and they can actually be removed.
But these lines are actually pretty far out there.
And so, yeah, they have a lot of leeway to basically drag things on as long as they want.
Okay, so, okay, great.
So now the Aeros Capital is within the hands of the liquidator.
And then what we start seeing is we start seeing all the funds,
the uncollateralized lenders or the lenders who had uncollateralized loans all start to collapse.
The dominoes start to fall.
So did you know in advance that these dominoes were going to fall?
Like when you were sitting on the beach in Bali, did you think to yourself,
these guys are uncollarized?
soon the tide is going to go out and we're going to see who's wearing a swimwear and who's not.
Did you know that this, that this domino of liquidations of the,
of the centralized lenders was coming?
Did you have foresight to that?
I had some ideas that some of them would have issues.
I also had ideas that FTX was insider trading against us and would have issues for that too.
But I don't.
I don't have any idea of the total magnitude.
But you know, it's funny you should say that because I actually recorded a recent podcast.
It will be out maybe tomorrow or the day after.
I'll let, you know, the guest and all that talk about, you know, be announced later when they come out with it.
But it's actually a three arrows creditor.
And when asked what, you know, how they became, they became.
turned from a three-hours creditor into like an open-X investor and how they how what was that process for them that their answer to that is shocking to me i've never heard it before um he said uh thank you for uh the information of that time we are a small creditor of three arrows but we were potentially a large creditor of lots of other estates
However, when you went down, I realized that we pulled all these funds and it saved us a shit ton of money.
And that was just eye-opening to me.
But you can hear it from his mouth in like a day or two.
But at no point in time, at no point in time do you think to yourself, I have destroyed all these retail.
The blow-up of my company has destroyed 60% of retail investors.
At what point does the penny drop for you that as a result of your company getting these unsecured loans?
Now, I'm not saying that you were at fault.
I'm just saying because your company got so many unsecured loans and your company collapsed,
I think, and I don't have stats, but I'd say 50% of retail investors got wrecked as a result of that.
Now, at any point in time, do you think to yourself, at any point in time, do you think to yourself,
as a result of what happened to my company...
everyone yet is getting rigged.
Let me answer this with another question back to you.
Who were the largest profiteers of the credit bubble?
They were the credit lenders.
They were the firms.
There was one that raised at a $14 billion valuation.
There were others that raised at $3.5 billion dollar valuations.
Our equity, we never raised.
We never monetized, right?
We traded a fund, but I never raised at the three-hour management company level, right?
The largest in,
incentives were very much at the lenders. And everyone had due diligence, right? So for a retail
guy, they have a certain kind of due diligence that they do with a retail lending firm. And
if there are issues there, like there's a misrepresentation or anything, then those retail
lending firms are at fault.
On our side, we face only institutions.
I actually don't even know who's on the other side of a lot of these things.
I don't know.
I don't know.
I know in advance.
And so...
I know in advance that was the case, but I'm saying afterwards.
Now everything's happened.
You know, everything's happened already.
I'm asking you afterwards, at what point do you realize that about half of crypto retail is about...
is about to get...
No, no, no, no.
So I don't realize that afterwards,
because I don't know that FTX as a whole is about to collapse, right?
I don't know that they've been taking client funds
and doing what they did with it, right?
So I do not know that like 50% of the market
is about to get wiped out and all that stuff.
I, yeah, I just know that we faced institutions
You know, we defaulted on them.
And then, you know, it's reasonable that maybe one or two of them may have issues.
But I do not know that this is going to lead to, you know, anything more than that.
And in the case of FTX, by the way, if you look back to their holes in their balance sheet, they are happened earlier.
likely and they were on order of magnitude more right and so i i am not aware of that at all that
is okay you know yeah fair enough okay fair enough at some point hey right but kyle do you do you um
did you know how block phi celsius how they solicited their investments that they were lending to you
I mean, I know that they borrow from retail, and I know that they do various things.
They run some – I mean, Celsius is mainly an internal hedge fund, right?
They were actually a very, very small creditor of us.
Most of their funds, they traded themselves, right?
I also know that BlockFi –
does something similar, right?
They, we were actually an investor in Block 5,
and in their deck, they talk about copying us.
Simon, let me, Sam, Sam, we will bring you, Simon.
So, Sam, I promise you we will bring you guys up.
I just want to finish a few more questions with Carl,
and I promise you that we will bring you up.
All right, Carl, so at some point we realize this.
Now, I must be honest.
I thought it was very, very, very gutsy.
almost dumb of you guys to try and start up in crypto again.
After all the mud that was that was thrown at you guys,
you guys were labeled as scammers.
I think we've now clarified.
And in fact, let's just go one step back before I ask this question.
Up until now, are there any fraud cases against you guys?
Are there any, I don't know, elicit activity cases?
Is there anything other than the liquidation that's actually going on?
Ron, we don't even have a civil case anywhere in the world, let alone anything else.
So absolutely not.
And this is after our liquidator has like all of our books, they see everything like, no, we don't have anything.
And it's not to say that, I mean, people may try.
Like I've learned many, many things over the past year.
And one of the things I've realized is that...
people actually do frivolous cases all the time like no one has but no one has even gotten to that
step with us which would be the entry level step like a fishing step right no one has even gotten to
that level so for us um yeah where i mean i agree with you it's an uphill battle um and we are uh
but you know what i actually got some really really good advice uh also in these in this period and um
And someone, I won't say his name, but he's a very big guy in the industry.
And he said, ignore what's happening right now.
Take permission from no one.
Bounce back fast now.
Right.
you have, you know, one of, like,
some of the best information about what's happening in the space,
how to rebuild, how to do it better,
you know, even more so than maybe him, right?
Because I had seen how things had broken.
And he said, bounce back fast.
And we just took that to heart.
We thought about a couple of ideas.
We pitched many different kind of concepts,
but eventually realized that it was,
the bankruptcy process that we wanted to focus on because we knew that really well at that point
and and so that's where that birthed the the idea for open X and I actually we wanted to
I want to talk about open X yeah I want to talk about open X because we're going to speak about it
because as you know I'm an investor I said it publicly so I do want to talk about it I want to talk about
it very openly and very candy just two more questions first question is
You mentioned that there were a lot of shoes that dropped and that, you know, you realize that, you know, FTX dropped, et cetera.
Now that you have a much fuller picture and you know who you owed money to and you know who went down and you know what the FTX book looks like.
When you look at the crypto market now, are there any shoes left to drop?
I don't think so, actually.
I think there are a couple of...
let's say old generation exchanges, which still may have holes.
But in terms of the lending firms, there are none left.
I mean, there is one.
So is it only the lenders?
Like, let me give you an example.
I'll give you one example.
Yeah.
We know that DCG has a big portfolio.
We know that DCG was in a little bit of trouble.
We know that there was Genesis, Gemini, that whole, that whole line, let's call it, for now.
Um, yeah.
Is there anything that could fall there that could maybe rattle the market again?
Like, you guys were...
Headlines.
Yeah, yeah.
So, okay, so to be clear, that that whole string has not sorted itself out yet, right?
Barry's still holding out over there.
So, yeah, like, that for sure has not been sorted.
And there can be headline risk.
There can be all sorts of things.
There can be unwind risk.
But, yeah, like...
I think in terms of, like, let's say the problem funds that may have problematic balance sheets,
the only ones that I can think of that might still be issues are a couple of like tier two exchanges.
But other than that, I think broadly speaking, the shoes have generally fallen by now.
Okay.
Okay.
So now I want to just go, I want to fast forward a little bit and I want to ask you, so what...
what how do you have the guts to come back into crypto and to start an exchange what were you thinking like what are you thinking at this point to say hey we're going to come back to crypto and we're going to start an exchange what's a thought process
The thought process is that I saw every, I felt like I saw everything from the inside what went wrong,
you know, to third parties. And I was a fund that was hunted by an exchange and had exposure to lots of lenders, right?
So I'm kind of at the nexus of a lot of this. And I start thinking, how would you design a better exchange? And that,
basically is the heart of what OpenX is.
And just to give, I won't go through the whole pitch, but just to give a very high level of what
OpenX is, it is a, the next generation centralized exchange built on DFI principles.
So the, the architecture of the exchange is very different than the centralized bucket shop
where everyone puts their money together.
You don't know who's is whose.
The exchange trades against you.
That model is just done and broken and over in my mind.
The.
The next generation needs to be better.
And so we wanted a way to show that the exchange is provably solvent.
And the way that's done is by the architecture of the exchange.
The collateral is on chain against that you borrow OUSD,
and the OUSD is what you trade on the exchange.
So you can see the collateral.
It is separate from the matching engine.
But I mean, Shirley, but I mean, Carl,
surely an exchange is...
I mean, I'm going to call this a centralized exchange because it is a hybrid exchange, semi-centralized exchange, call it a hybrid exchange, semi-centralized exchange, call it or whatever, whatever you want to call it.
Surely the premise of a centralized exchange is that you've got to trust the operators, right?
And surely you and...
I don't want you to have to trust me.
I want to build an exchange where you do not have to trust me,
not nearly as much as you have to trust any of the other centralized guys out there.
But I want it to be more performant than any of the decentralized ones out there.
And so if I want to put, if I want to send my money,
I want to send my money into your exchange,
because I want to trade on your exchange.
I'm watching the trade.
I want to send my money to your exchange.
Where does my money go?
It goes.
So you would stake if you had Ox Token, you could stake Ox Token.
If you had Ethereum, Bitcoin, whatever, that would sit on chain in our custody, but separate from the matching engine.
against that, you would borrow OUSD,
and you would trade that on the exchange.
And you would know that, firstly, OUSD may not trade at the peg.
It may not trade at a dollar.
There are incentives for it too, but it may not.
But you would know for sure that your collateral is OK.
And you would know that the exchange is provably solvent.
And also, you would know that it's probably fair.
So one of the biggest problems at FTCS
is they could see your positions.
And if they know you're about to be liquidated,
It costs money to move the market, but they could do so in a period of low liquidity, spike it and liquidate you.
If we publish all the liquidation levels, there is no more God mode.
Everyone is God, which means no one is God, which means that...
It is provably fair.
And these are basically the general principles of the interior of the exchange.
Around that, we have some other cool innovations,
like the idea of tokenized bankruptcy claims.
If you have an FTCs claim in about a week,
you will be able to tokenize that and move it on to the exchange
and trade that using that collateral.
Separate from that, we have a launch pad,
which is also done in kind of a different, you know, unique way.
So we have innovation around the exchange,
but at its core, why would you do it?
because it is an order of magnitude more transparent.
It is provably fair and is provably solvent.
And that is something that no centralized exchange will be for you right now.
Hey, Kyle, Rand, can I jump in really quickly?
Sure, jump in is good.
I just want to circle back before we go too deep down this rabbit hole.
You kind of made a joke earlier where you said grayscale and you said I meant Genesis.
Sometimes it's easy.
easy to get them confused or something to that effect.
And we just sort of asked you about DCG.
I think a lot of people question what has been reported as a somewhat incestuous relationship
between Genesis, the lenders, GBT, the GBT trade.
When you and I spoke in Dubai, we talked a bit about that.
You said you don't think there's another shoe to drop,
but back when we spoke last time, it seemed like you had the impression that that was a major shoe that could still drop.
because there was a lot that was going on there that people didn't quite understand.
Can you dig into that any deeper?
Okay.
So, Barry is the master, like, structure, basically, of businesses.
He is the architect of the entire lending space that also has the main use case as
grade scale and all of his...
entities basically are feeding each other, right?
And so, and now that Genesis is in bankruptcy itself,
he is, he has found a way to not even have DCG in bankruptcy yet.
Right? And, and that he is, so,
I regard him as like the godfather of that whole lending space.
And he's basically got it in a way that everyone's just on hold.
Like if nobody moves and if they allow him to keep the money,
then in the market rallies, then they might be whole, right?
Obviously he keeps the upside, right?
But they might be whole, right?
And I mean...
I didn't have that luxury.
Like I got stopped out at the bottom.
But somehow when he gets liquidated or, you know, gets called, he is able to hold it and he's now waiting for the mark to go higher.
So I don't know.
I really don't know.
I mean, he might be just the wizard behind the screen here that's able to actually pull that off.
But there are a lot of smart minds out there that are also trying to, you know, get Bitcoin ETFs and other things and force conversions.
And there are some really brilliant minds that are working on that side too.
So I don't have a strong view.
I just, it's not my background to know that answer.
Yeah, I guess the real question, you obviously described that you had the sort of the cash and carry trade with GBTC that was printing money when there was that massive premium, but then Genesis was also a lender.
And they've pointed to the fact that there's these Chinese walls between all of their entities, but it really doesn't sound like that.
Yeah, I mean, sure there are.
I see David Bailey is laughing, obviously, over here as a, you know, deeply involved in the activist GBTC trade.
I'm just curious if then you think...
Listen, Grayscale at this point is the only way that DCG is seemingly making money, but they're trying to convert to an ETF and would effectively make no money. So that seems like it could be smoke and mirrors. But what happens if Grayscale, if GBTC all of the sudden is not wildly profitable?
Certainly. And what are the incentives for that?
Like, why is it that Genesis would lend against the entire value of the Luna position mark to market when no other lender would dream of touching that collateral?
Why is that? I don't know. You got to ask the pros.
So who crashed Luna?
I mean, in my humble opinion, it was a coordinated FTX basically a debt.
Tell me why you think that, because I'm probably more upset about it than you are.
Tell me why you think it was a coordinated FTX attack.
Well, there's just too many things that happened all at the same time, right?
So there's a giant borrow that happens from the Genesis desk.
There's someone hits the curve pool at exactly the right time.
The amount of liquidity they would need is probably more than what they had.
So they probably also would have had to use some maybe client funds in there.
Okay.
And that whole triangle just doesn't quite add up.
But frankly, I don't know.
I'm not really the one to make the final conclusion here.
There actually are investigations into that.
And I'm sure they have all the internal chats and everything.
They will get to the bottom of it.
Then a question.
Okay.
So I think that's the historical questions.
I just want to try and understand now.
So you start this,
you start this exchange and I want to talk about why you specifically partner
up with flex,
coin flex,
et cetera, et cetera.
But,
but,
More interested in the, you guys got a very, very, very bad response when you started after the exchange.
Or when you went public and when it came out that you were getting involved in Cryptagon,
that you were getting involved in an exchange, you guys got, you guys got roasted.
How did that feel? Walk me through, walk me through the feeling because we're all human,
we all have hearts, we, I know, I've fallen down and got up again, walk me through the emotion of
You're trying to start up again and everyone,
everything's just going against you.
Walk me through how that feels.
So, um, okay.
First of all, I am...
used to, like, extreme defamation, right?
Like, I'm used to people writing articles about me that say that I, like,
borrowed from the mob and stuff, right?
Like, really insane stuff.
And, and so I kind of had tough skin at this point.
But I also am extremely motivated.
Like, I think...
You know, one of the other things I did is I talked to other business people, and frankly, they just reached out, people that I didn't even know that well, that had seen multiple cycles.
And they told me all of their stories from the dot-com bubble and from the 08 crisis and all that stuff and how they then bounce back.
And I just heard those and I thought, you know what?
There are certain things that you can read in a book or you can learn from others, but there are other things that you really have to experience.
You will never know what it's like for major publications to be writing horrible things about you unless you go through that yourself, right?
And so for us, I actually just saw it as a challenge.
And...
And yeah, and we went about building things in a way that we would turn that energy into something
else. So when we wanted to be transparent, for example, and prove we were known as traders,
how do you know I'm not trading on my exchange, right? We came out and said, okay, we're going to
launch with the market making program on the same day that we opened the exchange. What
What's that going to mean?
There's going to be no liquidity.
No other exchange would do that.
Why did we do that?
We did that because on the first day,
we had very mostly, you know, $13 of volume.
And but it was announced as one.
And so we used that media to like re-announce that
and it became a very viral tweet, right?
And we got front page articles in Bloomberg
and, you know, every crypto media and all of those.
So we,
We basically have, I think I just understand the AI of media.
Actually, one of the funniest things we like to do is like,
ask chat BTC what they think of this product or us or whatever.
And then I already know basically,
I already know what the media is going to say.
They're all just AI at this point.
And so you can.
You can work with that.
And yeah, like, it's just a very interesting kind of a concept.
I cannot, I mean, why didn't you and Sue just be the front people for the exchange?
I mean, everyone knows that you guys are behind the exchange.
Why weren't you and Sue just the CEO and the MD or the chairman?
I mean, I don't know what you want to talk about positions.
You know, you've got, you know, I'm not qualified.
I'm not qualified.
No one would hire me to run an exchange, but Mark has been building exchanges for 10 years.
He dropped out of college when he was 19.
Bitcoin hit $5 and said, I'm going to spend the rest of my life doing this and built the first exchange in the UK.
It was doing 80% of volume.
So what is your role?
So what is your role and what is Kyle?
What is your role?
What is Sue's role?
What is Mark's role in this whole thing?
Like I'm like to me, I, I, I, I, I,
The reason why I started listening, and again, full transparency to the audience,
I bought the token on the open market at the same price, on the open market price quite early
because I wanted to back an entrepreneur that had failed and is rebuilding.
Someone who had built 20 million into $5 billion, I just thought, and I knew everything
that you had said up until now, maybe not in as much detail.
I decided that I wanted to back the entrepreneur.
I was laughed at, et cetera.
I want to try to understand why, who does what?
Because I backed you and Sue.
I don't know, Mark.
The only thing I know about Mark is that he was, you know,
in a bit of a fight with Roger and stuff like that.
My perception of Mark and Mark, I know if you're in the audience,
or if he has a speaker, forgive me if my perception of you was wrong,
but is that, you know, they had an exchange, which was the,
the was it called coin flex and it was an exchange that didn't actually get much traction
and I kind of thought well you know if you couldn't get much traction in a real bull market
maybe you're not the best exchange operator in the whole world or you didn't build the best
exchange in the whole world so with that in mind walk me through who does what and you know
what is like who's doing watcher and yeah sure that's a good place to start so mark
is very much in charge of the team and operating things. By the way, in, you know, prior to
OpenX, his exchange, Coinflex was the favored to beat Bitmex. They Bitmex was losing volume,
was losing tractions. People were betting on, you know, a number of exchanges. CoinFlex ended up losing, but the favored, if
If you look at their investor list, it's, you know, Sequoia, who's the largest investor in TikTok.
Sorry, not Sequoia. Susquehanna. Sorry, excuse me.
But also, you know, China Merchant's Bank, a huge player in the Asian market.
DRW, massive market maker.
You know, and another host of other names, too.
Actually, if you look at their list, it's not the, like,
Crypto Web 3, whatever's of this world, but it is like the real, like, you know, the real
market makers, the real big hedge funds of this world were behind them.
And why?
Because their tech was actually fantastic what they ended up building.
So their matching engine was probably the only one that was audited by a third party, right?
And the product that they built were actually incredibly innovative.
Their problem was they were focused on the high frequency trader.
you know, and sophisticated trader side.
They were very, they were not good at getting retail,
designing things in a simple way,
at marketing.
And these were things that Sue and I, you know,
came in and thought, actually,
you know,
We can help with this. And frankly, we can also help design some of the early architecture.
But the builders themselves and some of the products they built, incredibly impressive,
way more impressive than a lot of the other exchanges that arguably I don't think are even innovating anymore.
They're just paying higher refer fees or something.
In terms of real innovation, just look at the stuff that OpenX has been putting out.
It's really cool stuff.
I can jump in there too if you want.
So I think coin flex, two of our strong suits, one of our, two of our strongest product for the MM and FlexUSD.
And Flex2S especially was a stable coin that paid interest on chain to holders every eight hours.
and it did the basis trade.
So that trade that Kyle talked about earlier
where he would buy spot, sell futures, capture the yield,
we actually created a stable coin that did that trade.
And that kind of allowed...
the margin and the ability for traders to lever up,
that allowed that to scale quite substantially on the platform.
The AMM also kind of allowed people to do effectively
like covered call, cover put selling in a few simple clicks.
And that allowed the liquidity of the platform
to grow massively relative to a very small user base.
And basically what we were good at was building yield products that connected users directly
into order books and connected users' capital in a way where they were controlling all of it.
It was all transparent to them directly in those for other users to trade against.
What we lacked and what we really saw, you know, kind of after the downfall of both businesses,
we saw as a potential in Sune-Kyel is they had the zeitgeist of the crypto population.
They could tap into that.
They understood it.
They had a huge following.
They knew how to market these products to this huge zeitgeist.
And because they were traders, they could help.
you know,
adapt the products that we'd created
into being even better products.
And so we kind of had this ability
to take small number of users
and turn that into a very large amount
of volume relative to that base.
And what we saw in partnership with Sue and Kyle
is this ability to scale that up
from, you know,
a small user base to a massively large user base.
So that's kind of what we're doing about that.
Let me ask a quick question.
And Rand and Scott,
I know you've already asked this question.
I'm going to ask it for a third time.
Is...
You know, Kyle, I mean with all respect and going through the comments,
it's a sentiment shared by others.
Mark, the question is to you, after what happened with three arrows capital,
whatever the reason is, I think Kyle gave a great story of the beginning,
what led to it, the good and the bad, and how we got to today.
Did you have initial concerns?
What was your first thought, what were the first feelings when Kyle or Sue reached out to you
to discuss and to partner for...
OpenX.
So after both of our companies went insolvent and ours,
where it's going through a restructuring,
there's was going through a liquidation,
I was regularly getting, you know, breakfast and lunches and stuff with both Sue and
Kyle and especially Sue.
And we were just discussing...
All sorts of things.
So it was life, it was, you know, what's coming next?
What's, you know, philosophy?
What went wrong with exchanges?
We discussed FTX before it collapsed, after it collapsed.
And basically, you know, we'd gotten to know each other on the internet prior to that,
but that was when we really got to know each other in person.
And after all of this stuff, we just said...
Look, you know, I have no judgment. I get, I get that you guys collapsed. I understood that, you know, there were no issues involved.
It's not about business collapsing. The thing is that if it was just three arrows capital collapsing, it's one thing. But with three arrows collapses and brings so many other companies down with it. Again, I'm saying this with all respect, but I'm just being sincere. When it's just such a massive impact, so many people impacted by it, it just seems a bit.
Out of touch, and obviously you guys have done well coming back to the market,
exceeded my expectations.
Mario, I appreciate the question.
I don't see it that people fell directly.
I mean, would you not talk about Doe?
Like, he also created Luna, right?
Like, so, but at the same time, I actually spoke,
I spoke to Doa a lot too afterwards.
And it was one of those things where...
you know, where does the chain of judgment stop?
At some point, you take responsibility for your investments, right?
I lost a lot of money on Joe, like on Luna.
You know, I lost a lot of money on the FTX inner workings as well, right?
But at the end of the day,
you know, anyone that's seen multiple cycles in it and zoomed out would say all of these are risks that you took with rewards, right?
And you could have easily just not taken them.
You could have easily, you know, done it with a smaller portion of your money.
There are many things you could have done, but you did a risk reward.
And that was true of everyone in this whole process.
And so I don't blame dough.
We were thinking about even doing a recording with him at some point,
just to talk through what he's thinking, what he's going through.
I mean, a little bit busy right now, but, like, if he, I mean, I would be open to that.
He's, I'm sure, learned a lot of things, too, right?
And I would be very open to, you know, some of the lenders as well.
I'm sure they've learned many things.
Like, you know, they had their own incentives and they had their own things.
I don't know if they would do things differently, but frankly, all this stuff is, is, you know,
you know, is investors with judgment taking risks and getting rewards or, you know, losses, you know, accordingly, right?
And yeah.
Kyle, whether you knew it or not, or whether you know it now or not, there was a chain of command and there was a point at which it wasn't just an investor.
If you take the Celsius example, this is, you called it a hedge fund.
Most people were thought that they had invested in a savings account that was safer than a bank that drained out their entire life savings.
We know people that literally...
It was, for them, it was not an investment.
Now, I'm not saying that you were at that point or you were at that chain,
but when you borrowed from some of these companies that were completely misrepresenting people
to drain their entire retirement, their entire lifetime savings,
borrow against their houses, and do all sorts of stuff,
the companies that, you know, at one point,
were beyond except responsibility.
There was deep fraud and people are going to be indicted for this.
They may not have happened yet, but it's coming.
And so to say, to fob it off is just these were, you know,
sophisticated investors and you were at the institutional faith.
That may be how it felt for you at the time and it probably did.
But at some stage, did you make the connection
that there are actual pensioners that have been completely missold
and completely misrepresented that are now in dire situations in their life
as a result of these lending companies misrepresenting a hedge fund
with a very safe lending product.
And was there a point at which you realized,
oh shit, this is systemic and we're all connected?
And I wasn't just simply...
I'm making huge best with institutional money.
I actually was a hedge fund that was going to rep pensioners at some stage whether you knew it or not.
I would answer that by saying the best advice that someone gave me,
Bounce back. Build back better. That's what people should be doing. I would say the same thing to Roger Ver. He lost money on Coinplex. I would say the same thing to anyone.
What would you say to somebody that 75 years old?
that has no chance in the job market today in a world of AI and crypto and blockchains and
I wouldn't it's not my role to talk to that person Simon because I don't face retail so if
if I understand I'm not placing it Simon I'm not placing it just I'm very just one second
Simon I'm very I'm very interested to hear the opinion of you know now I think we've heard a
side of the story which I think a lot of people didn't actually hear and based on what we've
heard here today I want to be critical I want to I want to I want to try to understand
whose fault do you believe this collapse actually is Simon I'm throwing the question to you first
maria coming to you Scott I'm coming to you I really want to hear from everybody here now that
you've heard another side of the story
I want to hear who is to blame here and whether you guys still believe that, you know,
Kyle and Sue should be blamed and if yes, why.
And if not, who is to blame if anyone for this contagion?
Simon, starting with you.
Okay.
Yeah, I think the ultimate blame lies in two directions.
One is...
The fraudsters that were completely misrepresenting and facing retail and lying to people in order to try and grow at all costs.
And then doing...
Give us some names. Give us some names.
Well, yeah, come on.
Everyone knows it's Alex Mijinsky in my case.
Steve Erlich.
Yeah.
Yeah, you know, those people that were point blank lying to pensioners
where a 75-year-old person would travel to Miami
and say, is my lifetime savings safe here
while he's withdrawing money at the same time as them saying,
I'm all in on you.
And then, you know, saying, looking them in the eye and saying,
yes, everything's okay.
The second is, the second, so that one,
The second is the regulators that allowed illegal securities to get to the size where they impacted that many people without actually realizing that there was a chain of command.
Cool, I'm writing this down.
Alex Mishinsky's one, Gary Gensler's two.
Carry on.
Yeah.
That's where I'd say, you know, and obviously we've got the SBFs and I think SPS was touching, touching client money.
I want to ask your question.
Do you think, do you blame Carl and Sue?
Do I blame Kyle?
Carl's here?
Carl's here?
I mean, do you blame him for what happened?
No, the question that I really had was more along the lines of,
did you, at what point did you realize...
that your trades were actually trades that would be in place for retail pensioners.
Because is this the first time you're hearing this?
Or did you realize it at a certain point?
I'm happy to answer that, Simon.
And by the way, I agree with your point earlier.
The way I would answer that, I would say, I do not read the terms and conditions of what Celsius is doing with their retail or whatever, right?
Every lender that manages money underwrites risks for their users.
And they should be answer for whatever they have done.
For our users, for our fund, we accept those responsibilities.
I simply do not need, like, I don't have the time, the energy, like, it is, nor the responsibility
to know what the terms and conditions are for a block five.
Like, if the SEC comes in and gives them a fine, which they did, then what they did is
wrong.
But I am not that judge.
It's not me.
It is the SEC or it is, you know, the person going through their terms and conditions
or whatever, right?
I don't even see that side.
I only see the side that faces me.
Yeah.
Okay.
The question on Moss.
On who's responsible?
So I had two trades that blew up on me this year.
I'm a three arrows creditor and I'm a large GBTC bag holder.
Okay, who at the end of the day made those investments was me.
So at the end of the day, who's responsible for the losses?
Yeah.
It's me, the investor, who put the money with those parties.
So, you know, I, like, it's kind of going to, like, shirking the responsibility of, like, hey, Gary Ginsler is at fault for me losing money.
It's like, no, he's not.
Like, I'm at fault.
Yeah, but I mean, but I mean, if Carl, if Carl and Sue were not being, if Carl and Sue were not being transparent, okay?
And if they were doing illegal stuff, then you could blame them and say, look, you know, you guys didn't disclose it.
You were doing something illegal.
And you right?
So, you know, I've been in crypto a long time, Bitcoin a long time.
I've lost money in a lot of things.
You know, I don't fault someone for getting blown up.
People get blown up all the time.
The history of this industry is people getting blown up.
There's probably multiple people up here right now who've been blown up over their history in this industry.
What I think matters is what you do after you get blown up.
Like once you have knowledge of what's happened or what's gone wrong, what do you do then?
And how do you act?
And there are people in this industry who are,
are scammers and they scam and they know they were scaming.
And what they do afterwards is the least honorable thing to try to preserve as much capital for themselves as possible.
And, you know, honestly, I put Barry Silbert in that bucket.
I mean, looking at these two investments and putting them side by side, like, you know, I just want to say people who are criticizing Kyle and Sue for doing something.
I think that that's exactly what they should be doing.
They should be doing something.
But that's what I want to try and understand.
I have the only vested interest that I have been very transparent about,
I bought some tokens on the open market.
I don't know, Carl.
I've met Kyle face to face.
I think once, if I'm not mistaken.
When I was in Dubai, I've had probably five conversations with him in my entire life.
So I have no vested interest yet.
I just want to.
You know, I feel very strongly about entrepreneurs that have failed and managed to get up again.
And I feel much more strongly about entrepreneurs that have failed publicly and have got up or trying to get up again.
Because it's happened to me.
And I think we've had a good platform here to hear another side of the story.
You know, that's it.
I'm very keen to hear from anybody else if anybody here has any other views.
Because I think this is a town hall and we should open it up to anybody
and ask people if they have any other views kind of thing.
Is anybody, does anybody here, having heard what they've heard today, believe that that, that,
You know, these guys are scammers, fraudsters.
I've heard some big words being thrown around.
And I'm really interested to know if anybody, you know, if anybody wants to have the market.
Yeah, I'd like, sorry, I'd like to ask the question between.
So I get the sentiment.
Look, I blew up a lot of money.
It's my money.
You know, I move on.
It's that type of situation.
Yeah.
But is there a connection between what you're doing right now?
Just understand the sensitivity here.
Like a bunch of people are hurting in a big way.
They hear, okay, the chapter 15 process comes in.
And, okay, so I sit on a beach in Bali, and I come up with a business plan.
And now I'm here to tell you about how we got the best exchange in the world.
Is there any connection between the success of this exchange and the people,
the creditors and the people that might have actually felt victim to some of this stuff?
And I'm not passing blame on, as we said, SBF committed fraud.
You touched client, Molly.
Alex Mijinsky lied and committed fraud.
And the regulators allowed illegal securities to get this big and wrecked.
that many pensioners. You blew up, but through some crazy systemic situation, your trades were affecting pensioners without you being in the whole chain of command. That all makes sense. But is there actually any connection here between those that have been hurt by this situation?
So do they financially benefit from OpenX basically?
Yes?
That's what else the question.
So, well, I understand it, right?
Because you're probably going to jump into a pitch of,
oh, well, we'll allow you to sell your distress claims
and leverage your assets and DGEN and do, you know,
and make a bunch of money trading.
But is there any other, like, connection?
There definitely is.
So we've actually gone,
And we even set up, I think, probably the first ever shadow recovery process of what we're calling it.
And this SRP is a way for Sue and I to donate two creditors, which are early and supporting.
So if there are some that just don't want to deal with us, don't want to think about us, then whatever.
They don't have to.
It's everyone's free will here, right?
And also, this is entirely separate than the liquidation.
Taneo is the liquidator.
They will sell the firm's asset and distribute those to...
creditors separately.
But we have a number of creditors who were early
that are already whole or more than whole already.
And we have this process by which we will donate over time.
Again, entirely voluntary.
This is just something that we want to do.
And it's only for people that wanted to participate.
So if people don't want to, they don't have to.
If they do and they want to get involved,
then they supported us before and they're supporting us in the future,
then they, by all means, we're doing that.
Are you selling a tokenized security?
Are you trying to get people to buy a security there?
No, no, no, no, no, no.
What I'm saying is we, Sue and I are donating future earnings to this process.
Well, there's no token here.
There's no token at all.
There's no, there's no tradable asset or anything.
Yeah, I mean, not at all.
Semantics, yeah, I think, I think, you know, there's no token here.
I just have, okay, so while...
thinking about life deeply with Mark and Sue.
one of our,
I mean,
we thought about a lot of things,
but one of the things we really believe in is karma and,
and like something greater than all of us, right?
And some people, for some people that might be a kind of religion,
some people might be more of a philosophy or whatever.
But we all have this in common.
We believe that there is something greater out there.
And so we very much believe in the idea that if we do good
and we say, you know, creditors who lost money,
they have a way to make more back.
If, you know...
If we do that and they do well, then that's great.
And we think that's just good karma, or whatever you want to call it.
So, yeah, we definitely have done these things.
We will continue to do them.
Again, it's not for everyone.
It's for people that only people that want to participate.
But Kyle, what, sorry to interrupt, what does that mean for then, like, the retail customer
Simon is in the answer?
If I want to participate, what's the downside?
Well, the only thing that we ask is that you support in some way.
So if you're a trader, you trade.
If you're a marketmaker, you market make.
If you just want to support publicly, that's fine too.
But some kind of support.
And definitely no, not defaming.
If you are actively defaming, then that's not part of the process.
Speaking of support, I'm...
I've been watching the performance of the exchange.
It's been, I think the word's probably disappointing,
or should I say it's been quite a slow start to the exchange.
When you look at the performance of the exchange,
were you expecting more?
Were you expecting better results than the exchange currently has?
Were you expecting more volume?
Or is this part of the plan?
I see this as a journey.
And I see this as very much, there's no like official launch.
This is a staged launch, right?
And we are, our goal is to not have every single thing be successful on day one.
Our goal with the liquidity, for example, we started with $13 of liquidity.
I think we're trading over $50 million a day now, right?
Still not amazing, but it's getting there, right?
And same thing goes with the architecture of the exchange.
We're aspiring to be, you know,
this model, approval solvency and all that, but a lot of that's still not quite out there yet.
I want to ask you a question. How do you think the next bull market will look in comparison to the last? And could we see next bull market's lunar, next bull market's three arrows capital?
I think that there will be another crypto cycle and then there will likely be another bust at some point too.
And I cannot predict what that will look like.
I mean, I think the only thing that I can predict for myself anyways is that it's not going to look like the last one because people will have learned their lesson.
So it's not going to be the Celsius, you know, blockfi, blockchain.coms of this world doing, you know, doing the model that they had.
Right.
It'll be something different.
But...
It will be something.
And I don't really know what that will be yet.
It will be something, but presumably real quick.
Real quick, Rand.
Can you hear me?
Go ahead.
Hold on.
I don't know if you can hear you, Ryan.
Could you hear Scott?
I don't think he could.
No, you couldn't hear you.
Oh, no, couldn't hear you?
Yeah, go ahead, Scott.
Yeah, go ahead.
Yeah, I could tell that there was some sort of technical issue there.
I guess, you know, what gets me here, Mario, you know, you're asking the question,
what will the next cycle look like?
It seems like there's just a disproportionate,
negative effect on retail and the people that Simon was speaking about.
And I can't necessarily blame Kyle for that, obviously,
but we talk about the creditors you're saying, Kyle, obviously they can participate
and they can be incentivized to help you guys and make money back.
But that doesn't help the average person who's getting wrecked and wrecked by each of these cycles.
Right? And so, like, is there anything
Obviously, there's still a $650 million hole from three euros capital to Voyager.
That's in bankruptcy.
You have all these other.
Is there anything in the future where if you guys are successful, it would actually go back to those creditors?
Because I don't really think anyone gives a shit, frankly, about your institutional creditors who made a trade and lost money.
Right?
And I'm not saying that's your fault.
I'm just saying like it's always the little guy that's going to get fucked perpetually in every one of these cycles.
Yeah, so I mean, again, I don't really have like an, so I face Voyager, basically.
If Voyager at Perentco wants to, you know, participate, then that, you know, that is for sure a possibility, and we can work with that.
But I have-
They can't do that if they're already insolvent and have gone through Chapter 11 bankruptcy, right?
So that leaves the, you know, millions of creditors.
They can't really participate in that.
Or I could be wrong.
I'm just asking it.
Yeah, well, okay, basically, I don't have a way to reach retail at the three arrows level.
And with OpenX, you know, like I'm, I still, for these kind of things, I second Simon's idea.
I don't want to be doing security kinds of things and I don't want to be touching...
retail in ways that that would be dangerous, right?
And so for me, like when it comes to like the end Voyager creditor,
that very much has to be through the Voyager bankruptcy process.
It can't be that-
Right, but that Voyager bankruptcy process
is seeking $650 million from Three-Ero's capital.
That's how those retail people get paid.
Those retail people only get paid
if somehow that hole is filled, correct?
Certainly, and I have, again, nothing to do with the liquidation process of three errors.
That is being done by a liquidator, and I have nothing to do with the end creditors.
The only thing that I'm doing is I'm reaching out to, that would be Voyager management, by the way.
So there are ways to interface there, but yeah, it is for sure not my intention to go down and at
at three arrow like for the three hours time to ever interact with retail we were not regulated to do so
we did not have relationships with those kind of people we like we didn't we were not set up for that
if we had been set up for that maybe we would have done things very differently right but um
or maybe we would have thought the system was broken there were many things that could have
happened but as it turned out we were set up to face institutions that
that had institutional agreements between them and had their own due diligence processes and their own fiduciary responsibilities.
And that is the way we were set up.
So, yeah.
That makes sense.
How much color do you have on the liquidation process and how much assets might be recovered and be distributed back?
I have like no, I have less transparency there than probably like half the people on this call.
So that I've heard two cents on the dollar right now.
Okay.
I didn't hear you.
David, what'd you say?
David, what'd you say?
The last number I heard being floated was like between 15 and 25 cents on the dollar is like what claims are going for.
There's been some successful recovery.
Hey Kyle, can you, could you answer Rand's question on who do you think is to blame?
Who do you think of the bad people?
I know you'd rather maybe not do that, but who are the bad people in this process?
Yeah.
Okay, I think if there was serious fraud committed, particularly at a retail level, that is universally bad, right?
And then there's levels of specifically what they did, right?
And if you read some of the allegations against FTX, a lot of those do seem quite bad, right?
But again, I'm like, where...
We're really not the judge. I'm not the right judge of that.
So there are actually, you know, regulators that do regulate that kind of stuff.
Maybe they want to even improve some regulation, right, and change things around.
But, but, yeah, like, I actually strongly believe that there will be justice for a lot of that
because there are processes ongoing in those, and, yeah, you'll be able to see what happens.
Let me try not. Let me try and answer that.
Barry Silver, good or bad?
Well, Barry is an interesting one because he didn't face retail directly, but he did architect the whole thing, right?
Like our largest creditor was also, you know, their sister company was giving us the largest trade that we did, right?
And holding the same collateral, right?
So...
um i think uh david i would direct that question at david david probably has a strong view
i mean dude gbtc is wrecked like one million retirees i mean it's gbtc is the worst offender of all
of these it's traded in people's 401k it's at a whole other level i mean i'm so so i want to
guys guys i i want to because i think we went way over time and and first um
you know, appreciate the entire panel. Mark, Kyle, thanks for giving us more time than we initially planned for.
But look, the kind of the last question I want to kind of wrap up with, and it's a, without getting philosophical, when does greed become bad?
So, so if a VC, for example, receives an unlock of tokens, there's two options.
You can either sell those tokens because the market is overhyped, you know, capitalism 101.
Hey, the market is overhyped. You've got the tokens. We told the project we're going to sell them.
Is that bad or is that simply greed?
Because you're selling on retail investors.
So for example, if you look at three hours capital,
you know, there's no investigations,
there's no, there's no lawsuits you're dealing with,
which obviously doesn't put you in the same category as Sam,
but then again, you made decisions based on greed,
which is not necessarily bad,
but that money that you risked
is money of retail investors and retirees that don't know
how to determine the, the, the, the, go ahead, Kyle.
You know, I think you understand where the question is coming from.
And I could kind of give, and I would kind of put this as a wrap up question before I got
ran and to kind of finish up the space.
Carl, I'll let you in a way wrap it up and kind of look back at what happened and what
would be your message to the industry as a whole, but also people that were affected by what
happened.
So in the example you gave where BC gets privileged access to a deal, gets tokens, and then sells them upon unlock
that is precisely what we did not do we held to zero exactly so this is this is this is the positive
this is a positive side kyle and i agree that i kind of used it as an example to kind of show like
hey you made some decisions which many others made did the opposite a lot of ecs that everyone's
ignoring right now did the opposite and they dumped on retail investors simon remember me you
talked about it months and months ago during the bull market on a space
So that's a kind of a plush you get there, but then that's why I kind of mentioned the other thing, Kyle, which is the mistakes you've made. I want to get your thoughts on when greed becomes bad and obviously reflecting back, maybe a message to people impacted.
So I believe in everyone's fiduciary responsibility, first to themselves and then to, you know,
any other fiduciary responsibilities that they have with whatever funds they're managing, right?
And there is a chain there.
And the chain is important because...
You can't be responsible.
Like some people, even on Twitter, I see criticize me for the whole market going down.
Like I sold Bitcoin and then like, and then they lost money on whatever other, like,
To me, there needs to be more than that.
If someone sells the S&P 500 and it goes down a little bit,
is now, are they now to blame for everyone in the world that lost a little bit of money?
No, they are not.
People need to take responsibility.
They need to build.
They need to make things.
They need to have agency, right?
And ultimately, we still need to protect retail.
So there needs to be a layer there as well.
at the, you know, but there needs to be this clear line.
So yes, that some of the allegations that we had against,
like being responsible for the whole market tanking
or things like this, these are frankly absurd, right?
When, do we take responsibility for losing the money
in our fund? Absolutely, it was majority of our money.
Do we take responsibility for the lenders?
Absolutely, right? Like they were the next.
but at the end of the day
like these bare market and adoptions
how does this how do people
how does it like what comes back
it's by building something of value
and it's by creating
new things and that's what
we are aspiring to do and I hope there's plenty
plan to do that too.
I'm going to lie and ask one more question.
Sorry, Kyle.
And that's a question by previous panelist.
And the following.
Why are both the SEC and the CFTC
currently investigating you for misrepresenting your balance sheet?
And anything else you can share regarding those two investigations?
They're not.
They're not.
Okay.
They have not.
I mean, well, they haven't contacted us for one.
But they have absolutely not.
Those are, again, people just...
making whatever allegations they want to make.
And Debbie, Wall Street, I'm also one more question.
Wall Street, I'll ask one more question before I give it to you,
Wall Street and then I'll wrap it up.
One more question, Kyle, is how, you know,
what do you say to people that like, hey, I'm not, you know,
these guys had a chance with three hours capital.
They made the wrong decisions and obviously led to what happened.
And why should we trust them again when it comes to OpenX?
How do we know that when, you know, now we're in a bare market, everyone's being rational, but then when greed kicks in in the midst of a bull market, the same decisions are made at the detriment of the company and taking risks that shouldn't be taken.
Kyle and then we'll go to Wall Street bets.
I would say, I don't want you to trust me right now.
I want, I don't want you to trust anyone.
One of the core tenets of crypto is,
is that you shouldn't have to, right?
And so the architecture of OpenX is very much
the most transparent, the most provably solvent,
we believe the best architecture for any centralized exchange by a margin.
And that's important.
But then when it comes to giving people, whatever, second chances, things like that,
I would say that's up to people's free will.
And it comes down to the product ultimately.
If it turns out that we are able to make a good product and we learn valuable lessons
and can make things in better ways and people like that, then that's wonderful.
If not, then judge me by my product.
Wall Street bets.
Yeah, so, Kyle, you keep saying you only face institutions.
You keep saying there is no fraud or anything improper.
So I just have one simple question.
Did you attempt to borrow any money from individuals after the point at which you knew 3A was insolvent without fully disclosing the financial situation of the firm?
Absolutely not.
On June 10th, were you aware that the fund was insolvent?
Uh, never. No. So we went insolvent at the point when, uh, we couldn't meet the final margin call.
So on June 10th, you weren't, you weren't aware that they, that you guys would have issues paying back these loans?
I don't know what was happening on the 10th of June, but we did not, we never misrepresented, nor did we, um, uh,
borrow from individuals past any point of insolvency.
Multiple, multiple people.
If we did, there would be major,
if we did, there would be major repercussions, by the way.
Multiple people, multiple people in institutions
receive messages from you on and around June 10th,
where you were attempting to borrow money
against the GBT pledge.
You guys sent messages...
such as I have a trade idea for your idle BTC, a loan versus GPTC pledge to capture the
GPTC discount. So you have upside if the discount collapses. All you have to do is Lindas BTC
and we'll do the rest. 100 BTC would net around 120. That's on June 10th. Just four days later on
June 14th, Sue tweeted we are in the process of communicating with relevant parties and
and fully committed to working this out.
And two days later, on June 16th, the Financial Times reported that 3AC was insolent and unable to meet margin calls.
The timing of that seems quite strange that just four days before Sue tweeted that,
you guys were DME messaging individuals and firms asking to borrow money without disclosing the financial situation.
Do you know who the last lender was?
I don't.
It was Sue.
it was sue sue was the last lender to the firm uh also we did we we did not borrow any funds
with that uh with that pitch but did you did pitch people that that that statement which you are
making would do not result in any loans but even but you were trying to receive loans until the
end anyways after the point at which you knew you had issues paying back the loans that were
already outstanding
No, we did not take any funds after our point of insolvency.
No, we did not solicit after our point of insolvency.
Not the point of insolvency, but at that point we knew that there were issues.
Surely you knew the financial situation.
No, no. I understand what you're saying.
If we did take funds or if we did misrepresent, there will be repercussions.
There are not. Why are there not? There are not for a reason. Because we did not.
I think by the way, Wall Street,
but that's good questions.
Look guys, I think it was a great discussion.
I do want to remind the audience two things
that I forgot to remind during the space.
First, give us your thoughts on the bottom right corner
in the comments and try to be objective with your thoughts.
Like it's very easy for you to say the cool thing.
you know, just to start being emotional and illogical.
It stick to logic and you could be very critical,
you could be more understanding or somewhere in the middle.
I'm genuinely curious to get the sentiment of the audience
because I felt like an audience here listening to Rand and Kyle chat.
So it'll be one.
Number two, any project, any VC with the portfolio companies, if you want to come on the show or work with our incubator or join the Shark Tank type show we're going to be doing or the pitches that we've done and we'll be doing, hit us up. It's the pin tweets or DM us.
And, you know, Ryan was sharing the experience of the last sponsor. That was pretty ecstatic with the results they've had.
And the third thing I want to say is there is we're going to start hosting the show soon in a few weeks, I guess, from the Crypto Town Hall account.
So you've seen that little stupid red logo on the panel.
That's our Crypto Town Hall account.
So let us know how shitty the logo is and make sure you follow that account so you get no divided of future spaces.
So make sure you go on your phone and do that.
But otherwise...
That was, Ryan, I swear, that was one of my favorite spaces.
And, you know, I didn't know you're a good interview until this.
You know, I have a pretty bad, I had pretty bad expectations.
I'm like, Rand's going to fuck shit up.
But that was actually really, really interesting.
Yeah, well, Mario, thanks.
I'm trying to learn from the best, so I'm learning from Scott.
Yeah.
Thank you.
Thank you.
Yeah, I think, I think, look, Carl, first of all, thank you.
I know this, I know this took a lot to actually come up here.
We've been talking about doing this for a while.
I know this took a lot to come up here.
I've obviously heard parts of the story.
I heard some new parts of the story today, which were, I mean, pretty, pretty intriguing.
And I must say, from my side, really...
respect for for having for trying to rebuild in the face of all the headwinds that you guys are getting because I am watching the the sentiment gauge and I respect that you can you know despite all the negative sentiment actually keep building and I right I respect you know I want to give you credit here I know you probably got a lot of criticism but I want to give you credit no we disagree on on some things you when it comes to the to the discussion but um
Okay, the team has given me shit.
By the way, any sponsors or advertisers hit us up, not just projects, sponsors and advertisers.
All right, guys, stop giving me shit in the background.
Rand, what I want to give you credit for is that you are very critical, you know, during the bear market, even in the, you know, throughout recovery, you were very critical for our capital.
You've done, you were critical in our space.
I think you've tweeted about it pretty critically.
Okay.
And then you changed your mind, whether people agree with you or not.
That's your decision.
I think you made the right financial decision.
You've changed your mind and you were relatively unemotional and objective about it.
I think that, and I don't give you credit often,
but I think, you know, even could be you might have made the wrong decision
or that decision might backfire later or it might end up being your best decision you've made in a while.
I like the fact that you could pivot and change your mind.
Okay.
when you start understanding something better.
You can cope and cry about something or you can do something about it.
And Kyle and Mark,
I hope you all have much success in building this exchange
and doing something about fulfilling on 3AC creditors.
Yeah.
Look, Mario, I'll be honestly, I took a lot of,
I took a lot of flack from a lot of people.
when I came out publicly, because I try and be quite transparent with all my positions.
And the reason why I try and do that is because I don't want the community,
when I said a community, this community, the YouTube community,
to ever believe that I'm not doing things correctly.
And so I believe in full transparency.
And so when I invested in the flex token, I was very, very, very transparent about it.
I said, look, guys, I'm not going to win a popularity contest for this.
but I'm buying into Flex.
And this is the reason why I'm buying into Flex is because if two people
manage to build a portfolio from $20 million to $5 billion and they fell and they made
mistakes, I believe that they would have learned a lot from their mistakes and that
there is a good chance that they may be able to do something similar again.
And if that's going to happen, I want to join for the ride.
Now, look, I may be wrong.
I may be wrong.
And that's why I didn't put all my money into it.
I took a small bet here.
And so far, it's the bet has served me well.
That's not to say that the bed is going to serve me well at the end,
because you can only claim victory when you've gone through the finish line.
And in the interim, it looks like the bet is doing okay.
But again, it's very, very, very early in the race to claim any kind of victory.
But for me, I took a chance backing entrepreneurs that had done it once before.
They had fallen, they got up again, and they learned.
And the reason why I did that, to be brutally honest,
is because the same thing happened to me,
not as publicly, but I built a company in a dot com
era, I lost everything.
I lost my house.
I lost every single thing in that company when that company went into liquidation.
And then I got up and I rebuilt and I landed up rebuilding and I built the biggest
marketing company and sold the biggest marketing company in Africa a few years later.
So I know how hard it is to get knocked down from from being, you know, I was at the top of my
game.
I got knocked down to zero into liquidation.
And.
and then having to get up against.
I know how harder was.
And it must be much harder.
The way I said it's probably much harder
if you're doing it being so public.
I wasn't as public as Kyle and Sue were
because I wasn't as successful before.
So the forefront grace must be very tough
and I respect the guys that they got up.
Now,
I mean, only time we'll tell how the story plays out, but I thought it was important that we get the story out there and that people hear it.
Yeah, and I think the panel was pretty balanced, I think.
Scott, for example, being very, very critical and others being less critical.
To wrap it up, Scott, you know the story about Ryan, losing money, making money in the 01 market.
I heard that about 20 times during the Shark Tank show that we did, just FYI.
Every project that pitches, we'll find out in the show in the episode that ran, made $600 million and lost it and made it again.
Are you going to hang up on me if I were doing it?
No, no, no, I want.
I thought about it.
I'm going to take a break a few days from doing it.
So, no, I promise no.
But respond, please.
Don't believe it.
I promise you, I've traumatized you.
All, everyone, I love you all.
Thank you so much.
We'll see you again tomorrow.
Hey, Marion, can I do a closing request?
A closing request, please.
Yeah, quick, quick, because we're over time, please go ahead.
Mark, Mark, I've known you since like 2013
back in the UK Digital Currency Association days
when you launched the first UK exchange.
Simon, you're not going to say, hold on, before you start talking, you're not going to say full disclosure, I am an investor.
I was going to say that. I was going to ask.
It was the first time I've ever heard you not.
Actually, full disclosure, I am an investor.
Full disclosure, I am an investor.
Actually, Mark, I tried to invest in your exchange in 2013.
It didn't happen, right?
But anyway.
Correct.
Yeah.
Would you be willing to do a similar thing on what happened with CoinFlex and have Roger Vera
and discuss the Roger Verre situation?
I'd love that.
Absolutely.
We'll organize.
So we'll do it.
Randman,
we'll organize it in the show.
Simon,
great idea.
I know Roger well.
I know Roger well.
I could probably speak to him.
I'm not sure if you'll do it,
but I'd be very happy to host.
It'll be really cool.
It'd be really cool.
Great idea, Simon.
Cool.
Well, Simon just...
All right, guys.
It's been an amazing, amazing space.
It's one of our, I think,
from a viewership point of view,
one of the best we've had.
So thank you very much.
Take credit.
Take credit, bro.
Yep.
Take credit.
Keep going.
Yeah, I think if you'd let Scott maybe just wrap up first.
Bye guys.
By the way, Simon, Simon, Simon, what we used to do is what we kind of wrap the space
by telling someone to give us their final thoughts.
Not sure if you've heard it before.
Like, hey, like, hey, like, and I usually do it to scan around.
Like, hey, guys, final thoughts on the space.
And what do you think?
Did you enjoy it?
Hold on, hold on, hold on.
Hold on.
Hold on.
Ron, hold on.
Hold on.
Simon?
You're going to do it on me now, weren't you?
End it.
No, don't tell man, no, no.
You only do it on the co-hosts,
but I was wondering whether you've heard it
because I would have loved to do it on you.
Oh, no, I thought you were setting me up.
No, man, no, no.
Have you heard it?
Do it before?
I haven't seen it, right?
